UK GDP Exceeds Expectations

UK GDP grew by 0.4% in June, beating the expected 0.1%, following a 0.1% decline in May. For the second quarter, growth was 0.3%, higher than the forecast of 0.1%. On an annual basis, growth was 1.2%, slightly down from 1.3% previously. In the Eurozone, GDP grew by 0.1% in Q2, matching forecasts, while annual growth remained steady at 1.4%. Employment increased by 0.1% in Q2 and 0.7% year-on-year, slightly exceeding expectations. However, Eurozone industrial production fell by 1.3% in June, worse than the expected 1.0% drop, reversing a 1.1% gain in May. Yearly output growth dropped to 0.2%, falling short of the 1.7% forecast and down from 3.1% in May. The EUR/GBP is testing the 0.8600 support level, trading around 0.8605. This pressure comes from the UK’s growth figures, which are better than a slower Eurozone economy. Weak industrial production data from the Euro area also suggests a bearish trend for the Euro.

Divergence in Monetary Policy

This situation prompts us to consider strategies to profit from a potential decline in the EUR/GBP rate. Options include buying put options to bet on a decrease or shorting futures contracts. Current data indicates that the path of least resistance is down for this currency pair. This outlook is reinforced by the current differences in monetary policy as of August 2025. The latest UK inflation for July 2025 is stuck at 2.9%, prompting the Bank of England to keep its base rate at 4.5%. Meanwhile, the European Central Bank, facing a lower inflation rate of 2.2%, has cut its main rate to 3.0% to stimulate its sluggish economy. In 2024, we witnessed similar trends when the EUR/GBP dropped below 0.8500 due to rate differentials. Upcoming inflation figures for the UK and Eurozone, set to be released next Wednesday, will be crucial. If the UK reports unexpectedly high inflation, it could break the 0.8600 support level for good. We anticipate increased volatility leading up to that announcement. Using options can help manage risk, letting us prepare for a downward movement while limiting potential losses if the data surprises. This is especially crucial since the 0.8600 level has held strong for two months. Create your live VT Markets account and start trading now.

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