Euro holds losses against British Pound as German Industrial Production unexpectedly drops in July
- EUR/GBP loses traction to near 0.8585 in Monday’s early European session.
- German Industrial Production fell unexpectedly in July.
- The ECB is expected to raise interest rates again on Thursday.
The EUR/GBP cross loses ground to around 0.8585 during the early European trading hours on Monday. The Euro (EUR) attracts some sellers against the British Pound (GBP) following the German economic data.
Data released by Destatis on Monday showed that Germany’s Industrial Production declined 1.1% MoM in July, versus 0% (revised from 0.2%). This figure came in weaker than market expectations of 0.3% growth.
On an annual basis, Industrial sector activity fell by 1.6% YoY in July, compared to a decline of 0.5% in June. The report suggested the bumpy road Germany must navigate as it tries to overcome years of malaise. The European Central Bank (ECB) is widely expected to raise its key interest rates by 25 basis points (bps) at its upcoming monetary policy meeting on Thursday.
"The ECB governing council looks certain to raise its deposit rate from 2.25 percent to 2.5 percent," said Andrew Kenningham, chief Europe economist at Capital Economics.
The Bank of England (BoE) Chief economist Huw Pill, one of the most hawkish members of the Monetary Policy Committee (MPC), said last week that the central bank could lift interest rates without kickstarting a lengthy period of sharp increases.
Markets expect the UK central bank to leave interest rates unchanged at 3.75% at its next meeting on September 17, though they are fully pricing in a quarter-point hike by the end of the year, according to Bloomberg.
UK fiscal messaging in focus as markets look to October budget
Analysts at ING highlight the political backdrop in the UK, noting that "UK Chancellor John Healey makes his first big speech today and will be prepping markets for the budget on 28 October." They suggest this communication will be closely watched as investors gauge how the new fiscal stance is framed ahead of the autumn budget.
Technical Analysis: EUR/GBP keeps a neutral bias in the near term
In the daily chart, EUR/GBP holds a neutral tone as it sits between near-term support and overhead moving-average resistance. Price remains above the Bollinger middle band around 0.8566, suggesting modest underlying support, while the upper Bollinger band and the 100-day moving average (MA) cap the topside and keep bulls in check. The Relative Strength Index (14) around 58 leans slightly to the upside, hinting that buyers retain some control but lack a decisive breakout trigger.
On the downside, initial support is seen at the Bollinger middle band near 0.8565, with further demand aligned at the lower Bollinger band around 0.8535 if selling pressure deepens. On the topside, immediate resistance stands at the upper Bollinger band and the 100-day MA at 0.8600. A daily close above this cluster would open the door to a more constructive recovery, while failure to clear it would keep EUR/GBP confined within its current tight range.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Euro FAQs
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%).
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.
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.
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.
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
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.
