EUR/GBP was choppy on Thursday, with Sterling modestly firmer than the Euro. The pair traded near 0.8659 after reaching an intraday high of 0.8668.
UK GDP rose 1.1% year-on-year in Q1 2026, up from 1% in the prior quarter and above a 0.8% forecast. March GDP increased 0.3% versus expectations for a 0.2% fall, after a 0.4% rise in February.
Sterling’s gains were limited as UK political uncertainty increased after Labour’s weak local election results. Health Secretary Wes Streeting resigned on Thursday amid talk of leadership pressure on Prime Minister Keir Starmer.
Markets are also watching the ECB and BoE as oil-related inflation risks follow Middle East disruption. Traders are pricing at least two interest rate hikes from both central banks by year-end.
The Euro struggled as the Eurozone is seen as more exposed to the energy shock due to reliance on imported energy. This has raised concerns about slower growth and the ECB’s ability to raise rates.
EUR/GBP stayed below the 50-day SMA at 0.8671 and the 200-day SMA at 0.8702, with RSI near 48. MACD was slightly positive, while resistance was noted at 0.8671 and 0.8702.
The recent UK GDP print of 1.1% is significant when we recall the technical recession we saw at the end of 2025, suggesting a genuine economic recovery is taking hold. This divergence with the Eurozone, which is more exposed to energy price shocks, points towards continued sterling strength. Derivative strategies should therefore be positioned for a drop in the EUR/GBP cross over the coming weeks.
However, the political noise in the UK cannot be ignored, as it is capping the pound’s potential gains. We all remember how the leadership chaos in 2022 sent sterling into a nosedive, and the current challenge to Prime Minister Starmer creates similar uncertainty. A recent YouGov poll showing his approval rating dropping to 28% after the local elections explains why the market is hesitant to fully back the pound.
Both the Bank of England and the ECB are facing pressure from oil-driven inflation, with Brent crude stubbornly holding above $95 a barrel for the past month. The UK’s latest CPI reading of 3.5% gives the BoE a clearer mandate to hike rates, but recent German industrial production data contracted by 0.5%, making it harder for the ECB to act aggressively. This policy divergence strongly favors the pound over the euro for now.
From a technical standpoint, the area between the 50-day moving average at 0.8671 and the 200-day at 0.8702 is now a key resistance zone. We should view any rally into this band as a potential opportunity to initiate short positions or buy put options. The lack of clear support below means a breakdown could accelerate, targeting the lows we saw earlier in the year.
