The Euro is losing value, nearing 0.8700, due to disappointing manufacturing data. In December, the Eurozone’s manufacturing activity decreased more than expected, with the final HCOB Manufacturing PMI adjusted to 48.8 from an initial 49.2. In contrast, the UK’s Manufacturing PMI shows modest growth, although it was revised down to 50.6 from 51.2. This figure is still higher than November’s 50.2, indicating slight growth in the UK’s manufacturing sector.

The Eurozone Manufacturing Decline

Manufacturing activity in the Eurozone is declining. Germany’s PMI was revised down to 47.0 from 47.7. Italy’s PMI dropped to 47.9 in December. Spain experienced a contraction with a PMI of 49.6, down from November’s 51.5. Only France saw a small rise, with its PMI increasing to 50.7 from 50.6. The Manufacturing Purchasing Managers Index, released monthly by S&P Global and Hamburg Commercial Bank, indicates business activity in Eurozone manufacturing. It ranges from 0 to 100—below 50 shows a decline, while above 50 indicates growth. This index helps predict trends that may affect GDP, industrial production, and employment. The widening gap between Eurozone and UK manufacturing data suggests a possible drop in EUR/GBP. The Eurozone’s PMI fell to 48.8, showing deepening contraction, while the UK’s PMI of 50.6 indicates mild growth. This fundamental difference puts downward pressure on the currency pair. This weak manufacturing report aligns with broader economic performance seen in the third quarter of 2025. Eurostat data showed the Euro Area economy contracted by 0.1%, while the UK economy managed to avoid a recession with flat growth. This trend indicates stronger economic challenges in the Eurozone.

Possible Policy Divergence

The negative economic data from the Eurozone, particularly from Germany, may lead the European Central Bank to adopt a more cautious policy sooner than expected. Meanwhile, the UK’s relative stability could allow the Bank of England to stick to its current policy. This potential difference in central bank outlook usually puts downward pressure on the EUR/GBP exchange rate. Given this situation, we should consider buying EUR/GBP put options with strike prices below the important 0.8700 support level. Options with expirations in February 2026 and March 2026 would give enough time for the trend to develop after these data releases. If the 0.8700 level is decisively breached, we could see the currency pair move toward the 0.8640 area, as we did in the summer of 2025. We should also monitor implied volatility, which has been low as the pair remains in a stable range. This makes options affordable and presents a chance to prepare for a drop below 0.8700 with limited upfront risk. A sustained move above the 0.8740 resistance level would suggest we should rethink this bearish outlook. Create your live VT Markets account and start trading now.

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