EUR/GBP declines below 0.8750 as UK GDP matches forecasts

EUR/GBP weakens to around 0.8730 in Tuesday’s early European session.
The UK economy expanded 0.1% QoQ in the third quarter, in line with the consensus.
ECB’s Lagarde emphasized the central bank is not pre-committing to a specific rate path, keeping all options on the table.

Lallalit Srijandorn FXStreet

The EUR/GBP cross trades in negative territory for the fourth consecutive day near 0.8730 during the early European session on Tuesday. The Pound Sterling (GBP) weakens against the Euro (EUR) after the Bank of England (BoE) delivered a widely expected rate cut but suggested that the bar for further reduction was high, given persistent inflation.

The UK central bank cut the interest rates to 3.75% at its December meeting last week, the lowest level since February 2023. BoE Governor Andrew Bailey said during the press conference that the overall trend for interest rates was down, but this might not happen as quickly as some analysts expect.

Money markets believe the BoE will deliver at least one rate cut in the first half of the year and are pricing in nearly a 50% probability of a second before the year-end, according to Reuters.

Furthermore, the final reading of UK Gross Domestic Product (GDP) data underpins the GBP. The Office for National Statistics (ONS) revealed that the UK economy grew at a quarterly pace of 0.1% in the third quarter (Q3), in line with preliminary estimates.

On the other hand, the European Central Bank (ECB) decided to keep all three key interest rates unchanged for the fourth consecutive time at its December meeting. The decision aligns with market expectations. ECB President Christine Lagarde said that monetary policy is in a "good place" and rates will remain steady for a prolonged period. Signals that the ECB rate cut cycle is ending could provide some support to the EUR against the GBP in the near term.

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

Editor's Picks

EUR/USD eyes 1.1800 barrier near two-month highs

EUR/USD extends its gains for the second successive session, trading around 1.1780 during the Asian hours on Tuesday. On the daily chart, technical analysis indicates a persistent bullish bias, as the pair moves upward within the ascending channel pattern. Additionally, the 14-day Relative Strength Index at 68.89 sits near overbought, signaling strong demand. RSI remains elevated, which could cap gains if overbought conditions emerge.

GBP/USD knocks ten-week highs ahead of holiday slowdown

GBP/USD found room on the high side on Monday, kicking off a holiday-shortened trading week with a fresh spat of Greenback weakness, bolstering the Pound Sterling into its highest bids in ten weeks. Pound traders are largely brushing off the latest interest rate cut from the Bank of England as the UK’s central bank policy strategy leaves the water murky for rate-cut watchers.

Gold bulls seem unstoppable amid supportive fundamental backdrop

Gold is seen building on the previous day's strong rally of over 2% and continues scaling new all-time highs for the second consecutive day on Tuesday. The commodity climbs closer to the $4,500 psychological mark during the Asian session and remains well supported by a combination of factors.

Uniswap holds above $6 as traders eye UNIfication vote outcome

Uniswap price holds above $6 at the time of writing on Tuesday after closing above a key resistance zone in the previous week. Traders are focusing on the highly anticipated UNIfication proposal, which is set to conclude on Thursday, and could become a key near-term catalyst. On the technical side, momentum indicators are flashing bullish signals, hinting at an upside rally.

Ten questions that matter going into 2026

2026 may be less about a neat “base case” and more about a regime shift—the market can reprice what matters most (growth, inflation, fiscal, geopolitics, concentration). The biggest trap is false comfort: the same trades can look defensive… right up until they become crowded.

XRP steadies above $1.90 support as fund inflows and retail demand rise

Ripple (XRP) is stable above support at $1.90 at the time of writing on Monday, after several attempts to break above the $2.00 hurdle failed to materialize last week. Meanwhile, institutional interest in the cross-border remittance token has remained steady.