- EUR/GBP trims gain around 0.8345 in Monday’s early European session.
- Germany’s Retail Sales fell by 2.0% MoM in September, weaker than expected.
- The BoE is expected to lift the Bank Rate to 4.0% at its November policy meeting on Thursday.
The EUR/GBP cross pares gains near 0.8345 during the early European session on Monday. The Euro (EUR) edges slightly lower following weaker German Retail Sales data. However, the stronger-than-expected Q3 Gross Domestic Product (GDP) data from the Eurozone and Germany might help limit the EUR’s losses.
Data released by Destatis on Monday showed that German Retail Sales, a key measure of consumer spending, dropped by 2.0% MoM in September, compared to a rise of 1.2% in August (revised from 1.3%). This figure came in weaker than the market expectations of a 0.4% rise. On an annualized basis, Retail Sales came in at -2.3% in September, versus a 0.3% decline prior (revised from -0.4).
On the UK’s front, the Bank of England (BoE) interest rate decision will take center stage on Thursday. Economists polled by Reuters anticipate the BoE to raise the Bank Rate to 4.0% from 3.75% at its November policy meeting. This would be its first hike since August 2023.
"While we don't expect a clear steer from the Committee on how many hikes they're planning, it's possible that the meeting minutes or Bailey ... signal that Bank Rate is unlikely to reach the level that is priced in by financial markets," said Alexander Harvey, UK economist at consultancy Oxford Economics.
UK budget seen trimming gilt risk premium as EUR/GBP stays heavy
Analysts at ING highlight that UK rates are still carrying a "20bp risk premium in 10-year UK gilt yields" which, according to Rates Strategist Michiel Tukker, "could come out of the market during today's UK budget release." They argue that the budget itself "is not expected to have too much say on the Bank of England's tightening prospects," although they caution that "any upside surprises on minimum wage adjustments could hawkishly ripple through money markets."
ING also points to the cross-market implications, noting that "some narrowing in the gilt-bund spread today could be a reminder that the UK looks to be one of the few G7 economies heading in the right fiscal direction into 2027," with forecasts for "the budget deficit heading inside 4% of GDP as higher inflation drags more income tax payers into higher tax brackets."
On the FX side, ING observes that "EUR/GBP is holding above 0.8350 support and is looking heavy." Barring "any surprise budget giveaways that hit gilts," the bank expects that "EUR/GBP can stay heavy and potentially nudge down to the 0.8315 area."
Nagel’s inflation warning boosts hawkish Euro tone
ECB’s Nagel scores 8.2/10 on FXS Speechtracker, notably above the historic average of 6.9/10, signaling a stronger-than-usual hawkish tilt. The pledge that the ECB “will take decisive action if needed to bring inflation back to target” reinforces expectations that policy tightening remains firmly on the table.
Nagel’s emphasis that consumer-price growth has picked up again and that further price increases “can’t be ruled out” underscores concern over persistent inflation pressures. By highlighting higher energy costs as a major driver, the speech supports a hawkish Euro bias, as markets may price in a greater likelihood of renewed or prolonged restrictive policy if inflation fails to ease.
Technical Analysis: EUR/GBP retains a negative outlook below the 100-day SMA
In the daily chart, EUR/GBP keeps a clear bearish near-term tone as spot holds beneath the 20-day Bollinger middle band and the 100-day simple moving average (SMA). Price is also well under the upper Bollinger band, reinforcing a capped structure, while the Relative Strength Index (14) at 23 remains in oversold territory, hinting that while downside pressure persists, the sell-off is already stretched.
On the downside, initial support emerges at the lower Bollinger band near 0.8315. On the topside, a first recovery hurdle is seen at the 20-day Bollinger SMA around 0.8410, followed by the upper Bollinger band at 0.8505, before the 100-day SMA at 0.8535 acts as a stronger barrier that would need to be reclaimed to ease the broader bearish bias.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Pound Sterling FAQs
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).
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.
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.
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.
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.