The EUR/GBP cross trades with mild gains near 0.8705 during the early European session on Monday. The Pound Sterling (GBP) weakens against the Euro (EUR) amid concerns over potential tax increases in the upcoming Autumn Budget. Traders brace for the UK employment report for fresh impetus, which will be released later on Tuesday.
Analysts expect the UK Chancellor of the Exchequer Rachel Reeves to raise taxes in the Autumn Statement again to meet her fiscal targets, which is scheduled for late November. The potential tax increases in the upcoming UK Autumn Budget could affect the UK economic growth and dampen the overall sentiment of households, which might exert some selling pressure on the GBP and create a tailwind for the cross.
“With the Autumn Budget 2025 in focus, we remain bearish on sterling, due to weakening growth prospects,” said analysts at bank J. Safra Sarasin.
French President Emmanuel Macron unveiled a new government after holding long talks with newly reappointed Prime Minister Sebastien Lecornu ahead of a deadline to present next year’s budget to parliament. Investors’ sentiment improved as Lecornu indicated that dissolving parliament and thus holding snap elections was unlikely. This, in turn, lifts the EUR against the GBP.
The European Central Bank (ECB) President Christine Lagarde said that she hopes France will produce a budget in time to meet international commitments. However, any signs of renewed political uncertainty in France could undermine the Euro in the near term.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data.
Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates.
When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP.
A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.