The Euro is losing ground against the British Pound after hitting a high of 0.8843. Right now, the EUR/GBP exchange rate is around 0.8826, mainly due to weak economic data from the Eurozone. At first, the Euro gained value because disappointing UK data affected the Pound. The UK’s GDP fell by 0.1% in September, and Q3 GDP only increased by 0.1%, which was below expectations. Yearly growth was 1.3%, also slightly below what was projected.

UK Economic Data

In September, UK Industrial Production decreased by 2.0%, reversing a 0.3% rise in August. Manufacturing output fell by 1.7%, worse than the expected decline of 0.3%. Earlier weak labor market data caused many to expect a rate cut from the Bank of England in December. The disappointing GDP and production figures add pressure on the central bank to take action if the slowdown continues. Later, the Euro dropped as Eurozone data was also disappointing. Industrial Production rose by 0.2% in September, falling short of the 0.7% forecast but an improvement over August’s -1.1%. Yearly Industrial Production climbed by 1.2%, but this was lower than the expected 2.1%. Upcoming Eurozone reports will include Employment Change figures and GDP estimates for the third quarter. The European Commission will also share updated economic growth projections. Both the UK and Eurozone economies are struggling, but the UK’s data looks particularly weak. The notable 2.0% drop in UK Industrial Production for September is a major concern for its economic stability. In contrast, the Eurozone saw a small, but disappointing rise, suggesting different paths for their central banks.

Market Positioning and Historical Context

The market is currently predicting an 85% chance of a rate cut from the Bank of England in December. UK inflation has decreased to 3.1% in October from previous highs, but it remains stubbornly high, leaving policymakers with tough choices between slow growth and rising prices. This fragile situation indicates that the Pound is likely to weaken further. On the other side, the European Central Bank is facing a similar, yet less intense, issue. Recent inflation data shows a headline rate of 2.7%, with core inflation still high at 3.5%. The ECB will likely be cautious about cutting rates before the first quarter of 2026. This growing difference in policy could benefit the Euro over the Pound in the medium term. Given this environment, it makes sense to expect further GBP weakness against the EUR, as the Bank of England seems more inclined to ease its monetary policy. Traders might think about buying EUR/GBP call options to profit from a potential increase in the pair, especially if tomorrow’s Eurozone GDP figures are at or above the 0.2% forecast. Watching implied volatility around this release will be important. We saw a similar situation occur after the Brexit referendum in 2016 when economic uncertainty in the UK led to a prolonged weakness of the Pound. During that time, the EUR/GBP pair rose significantly as the BoE adopted a more flexible approach than the ECB. History shows that when UK-specific risks rise, the Pound tends to struggle against the Euro. In the next few weeks, we will closely monitor the flash PMI manufacturing and services reports for both economies. Any further decline in the UK’s data compared to the Eurozone’s could strengthen the belief that the Pound has more room to fall. These forward-looking indicators will be crucial in setting the trend. Create your live VT Markets account and start trading now.

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