EUR/GBP strengthens to near 0.8750 on upbeat German Industrial Production data

EUR/GBP trades in positive territory around 0.8750 in Monday’s early European session.
German Industrial Production rose 1.8% MoM in October, better than the estimates.
BoE is expected to cut interest rates in the next meeting on December 18 to support weakening job market conditions.

Lallalit Srijandorn FXStreet

The EUR/GBP cross gains traction to near 0.8750, snapping the three-day losing streak during the early European trading hours on Monday. The Euro (EUR) edges higher against the Pound Sterling (GBP) after the German Industrial Production data. The Eurozone Sentix Investor Confidence report is due later on Monday.

Data released by Destatis on Monday showed that Germany’s Industrial Production climbed by 1.8% over the month in October, versus an increase of 1.3% in September. This figure came in stronger than the market expectation of a 0.4% decline. The EUR attracts some buyers in an immediate reaction to the upbeat German Industrial Production report.

Furthermore, rising expectations that the European Central Bank (ECB) is done cutting interest rates could lift the EUR against the GBP in the near term. Financial markets project that rates will be kept on hold at the upcoming policy meeting and have significantly reduced expectations for cuts in 2026. Earlier on Monday, ECB board member Isabel Schnabel said that she is comfortable with investor bets that the central bank’s next interest-rate move will be an increase.

Signs of a weakening UK economy and the UK Autumn November budget have reinforced bets for a December rate cut from the Bank of England (BoE). This, in turn, weighs on the GBP and acts as a tailwind for the cross. UK Prime Minister Keir Starmer emphasized the need to bring inflation and interest rates down to boost business investment and economic growth. The UK central bank is expected to cut its interest rates by 25 bps to 3.75% in the monetary policy announcement on December 18 amid a cooling UK job market.

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.

AUD/USD trades near May 14 highs, above 0.7200 ahead of China's trade data

AUD/USD sits above 0.7200 during the Asian session on Tuesday, near its highest level since May 14. The US Dollar stays under pressure as a rallying Japanese Yen outweighs support from hawkish Fed bets and geopolitical tensions. This, along with firming expectations for another RBA rate hike later this month, acts as a tailwind for the Aussie ahead of China's trade balance data.

USD/JPY sinks to mid-153.00s, February 18 lows as BoJ rate hike bets boost JPY

USD/JPY drops to its lowest level since February 18, near mid-153.00s during the Asian session on Tuesday, as Japan's upbeat wage growth data cements bets of a BoJ rate hike next week and continues to boost the Japanese Yen. Meanwhile, US Dollar selling remains unabated despite hawkish Fed expectations and rising geopolitical tensions, lending additional support to the currency pair.

Gold holds above $4,400 as USD weakness counters Fed hike bets

Gold trades with a positive bias above $4,400 during the Asian session on Tuesday and, for now, seems to have snapped a two-day losing streak as a rallying Japanese Yen keeps the US Dollar depressed. However, hawkish Fed bets, along with rising US-Iran tensions, could support the USD and cap the non-yielding bullion as traders await US inflation figures later this week.

Bitcoin whale profits hit record $9.07B, long-term holders increase on-chain activity

Bitcoin’s (BTC) short-term holder (STH) whales have reached a record level of unrealized profit, raising concerns that increased profit-taking could put pressure on the market during its current consolidation phase.

Strong US jobs, Middle East tensions and key inflation data ahead

Good morning all, hope you enjoyed your weekend. Markets are starting the week after Friday’s stronger-than-expected US jobs report, which increased expectations that the Fed could raise rates at its September meeting. However, US markets are closed today for the Labor Day holiday, so liquidity should be lower and we may see slower price action.

Diesel’s record $100 warning: The oil shock hiding in plain sight

The Oil market may look calmer than it did a few months ago, but diesel is sending a very different message. The US diesel crack spread, the premium of ultra-low sulphur diesel futures over WTI, recently surged above $100 per barrel for the first time, reaching an intraday record of just over $102.00.