The Euro has weakened for two days in a row against the British Pound, with the EUR/GBP now below 0.8700. The Eurozone’s Composite PMI for July is 50.9, slightly lower than the expected 51.0 and down from June’s 51.0. In contrast, UK PMI data surpassed expectations, with the Composite PMI rising to 51.5 and the Services PMI reaching 51.8. The Euro’s drop is partly due to weaker Eurozone PMI data and concerns over a US-EU trade deal that seems more favorable to the US. Meanwhile, the British Pound is stable ahead of the Bank of England’s monetary policy decision, boosted by stronger PMI figures.

EUR/GBP Decline

In early trading, the EUR/GBP crossed dipped below a crucial level, hitting around 0.8684, marking a decline of about 0.30% for the day. The latest PPI data from the Eurozone showed a monthly rise of 0.8%, indicating ongoing inflationary pressures, despite a generally weak economic outlook. Germany’s PMI data showed slight economic improvement, with both Composite and Services PMIs rising. At the same time, the European Central Bank has kept interest rates steady, and expectations for rate cuts are cautious given mixed economic signals. The UK’s PMI data suggests modest growth, providing some support to the Pound. Despite this, current market expectations hint at possible cuts from the BoE in their upcoming decision. Given the Euro’s decline against the Pound, we expect the EUR/GBP cross to continue downward over the coming weeks. Economic data shows a clear divergence, with the Eurozone economy showing signs of stalling while the UK displays unexpected strength. This fundamental weakness in the Eurozone makes it hard to see a sustained rebound from here.

Central Bank Dynamics

Our view is supported by recent official statistics. Eurostat’s final July Harmonised Index of Consumer Prices (HICP) confirmed an inflation rate of just 2.0%, missing forecasts and indicating weakening price pressures. In contrast, the UK’s latest labor market report from late July 2025 showed firm wage growth at 4.5%, giving the Bank of England less room to cut rates aggressively. Central bank dynamics are essential for our strategy. While the market anticipates a rate cut from the Bank of England, strong UK data may lead to a “hawkish cut,” meaning the bank would cut rates but signal a slower pace for future reductions. The European Central Bank, on the other hand, is limited by weak industrial performance in Germany, which unexpectedly contracted in June 2025. We’ve seen this kind of divergence before. In late 2023, the UK economy consistently outperformed dismal forecasts while the Eurozone, especially Germany, struggled with the aftermath of the energy crisis. During that time, the EUR/GBP pair was under pressure for several months, showing how persistent these trends can be. We are considering strategies that would profit from a further decline in the EUR/GBP pair. Buying put options on EUR/GBP with expirations in late September or October 2025 appears prudent, as it allows us to benefit from the trend while defining our maximum risk. We should look for entry points, especially if there are small bounces in the pair before the Bank of England’s decision. However, we must be alert for unexpected changes in comments from either central bank. A sudden improvement in German sentiment or a more dovish than expected Bank of England could lead to a sharp but likely temporary reversal. Monitoring upcoming inflation data from both regions will be crucial to support our outlook. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now