EUR/GBP flat lines near 0.8650 as traders await Eurozone/UK PMI data

EUR/GBP trades flat around 0.8655 in Thursday’s early European session.
Hotter-than-expected UK July inflation data diminishes the chance of a further rate cut by the BoE this year.
ECB’s Lagarde said she saw slower growth with trade uncertainty lingering.

Lallalit Srijandorn FXStreet

The EUR/GBP cross trades on a flat note around 0.8655 during the early European session on Thursday. Traders prefer to wait on the sidelines ahead of the preliminary reading of the HCOB Purchasing Managers Index (PMI) for August from the Eurozone and Germany, which are due later on Thursday. Also, flash UK S&P Global PMI data will be published.

UK inflation rose again in July to a higher-than-expected 3.8% amid higher food prices and travel costs, prompting the expectation that the Bank of England (BoE) will delay further interest rate cuts. This, in turn, could underpin the Pound Sterling (GBP) and create a headwind for the cross.

The BoE cut the interest rates from 4.25% to 4% earlier this month as the UK central bank resumed what it describes as a “gradual and careful” approach to monetary easing. A quarter-point cut is not fully priced in until March 2026. Earlier this month, the next rate reduction was viewed as highly likely before the end of 2025, per Reuters.

On the Euro front, the European Central Bank (ECB) President Christine Lagarde said on Thursday that the Eurozone economy is likely to see slower growth this quarter. Lagarde added that recent trade deals have alleviated but not eliminated due to uncertainty from the unpredictable policy environment.

ECB policymakers are anticipated to leave the deposit rate at 2.0% when they meet in September after their summer break, extending a pause that began last month following a yearlong campaign of cuts. The HCOB PMI reports released on Thursday could offer some hints about the interest rate path in the Eurozone. In case of a stronger-than-expected outcome, this could support the shared currency 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.

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