EUR/GBP holds gains above 0.8400 ahead of key economic data from Eurozone

EUR/GBP gains ground ahead of the release of GDP data from the Eurozone and Germany.
Germany’s CPI is forecasted to rise by 0.2% MoM in July, compared to June’s 0.1% reading.
UK Chancellor Rachel Reeves delivered a series of spending cuts in her first Parliament statement.

Akhtar Faruqui FXStreet

EUR/GBP halts two days of losses, trading around 0.8420 during the Asian session on Tuesday. The Euro appreciates ahead of Gross Domestic Product (GDP) data from the Eurozone and Germany for the second quarter on Tuesday. Germany will also release the Consumer Price Index (CPI) for July.

German GDP growth for Q2 is expected to ease to 0.1% quarter-over-quarter, down from 0.2% in the previous period. Annualized Eurozone GDP growth is forecasted to increase to 0.6%, up from 0.4%, though the quarter-over-quarter figure for the second quarter is anticipated to dip to 0.2% from 0.3%. Additionally, the German Consumer Price Index (CPI) is projected to rise by 0.2% month-over-month in July, compared to 0.1% previously.

In the United Kingdom, Chancellor Rachel Reeves delivered her first statement in Parliament on Monday, presenting a series of spending cuts and project delays following an audit of public finances. Reeves also announced that the Budget would be presented on October 30 and would involve “difficult decisions” regarding tax, spending, and welfare, according to the BBC.

The monthly Retail Sales Balance from the Confederation of British Industry (CBI) dropped to -43 in July, down from -24 in June and significantly worse than the forecast of -20. This marks the second consecutive month of declining annual sales. The reduced likelihood of an interest rate cut by the Bank of England (BoE) in August may continue to support the British Pound (GBP) and limit the upside for the EUR/GBP cross.

(This story was corrected on July 30 at 11:11 GMT to say that the reduced likelihood of an interest rate cut may limit the upside for the EUR/GBP cross, not limit the downside).

Euro FAQs

What is the Euro?

The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What is the ECB and how does it impact the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

How does inflation data impact the value of the Euro?

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

How does economic data influence the value of the Euro?

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

How does the Trade Balance impact the Euro?

Another significant data release for the Euro 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 then its currency will gain in value 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

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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