EUR/GBP trades flat near 0.8800 amid BoE rate cut speculation
- EUR/GBP holds steady around 0.8810 in Tuesday’s early European session.
- Subdued GDP growth and a gradually loosening labor market support the case for the BoE to lower rates.
- ECB policymakers have expressed a cautious stance, supporting the Euro.
The EUR/GBP cross flat lines near 0.8810 during the early European session on Tuesday. Nonetheless, recent weak UK Gross Domestic Product (GDP) data has pressured the Bank of England (BoE) to potentially cut rates, which might drag the Pound Sterling (GBP) lower against the Euro (EUR). The UK Consumer Price Index (CPI) and Producer Price Index (PPI) reports will be the highlights later on Wednesday.
Market pricing suggests a high probability that the BoE will reduce the interest rates to 3.75% in December due to subdued GDP growth and a gradually loosening labor market. Recent data showed that the UK Unemployment Rate rose to 5%, its highest since early 2021. Meanwhile, wage growth continued to slow, signaling a loosening labor market.
While market sentiment favors a December rate cut, the decision will depend on incoming economic data, including the upcoming Autumn Budget and inflation figures. The headline UK CPI is expected to show a rise of 3.6% YoY in October, while the core CPI is projected to show an increase of 3.4% YoY during the same period. A surprise upside for UK inflation data could boost the GBP and create a headwind for the cross in the near term.
The European Central Bank (ECB) has kept its key interest rates unchanged since June 2025, with traders expecting this pause to last into the next year. The cautious stance of the ECB could provide some support to the EUR against the GBP. According to a Reuters report from September 2025, analysts anticipate that the ECB's rate-cutting cycle will end amid a stable economic outlook.
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.