The EUR/GBP cross attracts some sellers to around 0.8745 during the early European session on Monday. The Pound Sterling (GBP) edges higher against the Euro (EUR) after the Bank of England (BoE) delivered its fourth rate cut this year, although markets pushed back their expectations for further easing.
The BoE cut interest rates to 3.75% at its December meeting last week, the lowest level since February 2023. This was the fourth rate reduction of the year and was widely expected amid falling inflation and a slowing economy. Nonetheless, an upgraded UK Gross Domestic Product (GDP) growth forecast for 2025 to 1.5% from 1.0% provides some support for the GBP and creates a headwind for the cross.
On the other hand, the European Central Bank (ECB) kept its key policy rate on hold last week. ECB President Christine Lagarde said that monetary policy is in a “good place” and rates will remain steady for a prolonged period. A fresh forecast followed the rate decision, predicting stronger economic growth and inflation rising to 2% in 2028 after staying below that level for most of the next two years.
The UK GDP data for the third quarter will be the highlight later on Monday. The UK economy is projected to grow 0.1% and 1.3% on a quarterly and annual basis, respectively. If the reports show weaker-than-expected outcomes, this could drag the GBP lower against the EUR.
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.
Source: https://www.fxstreet.com/news/eur-gbp-softens-below-08750-ahead-of-uk-gdp-release-202512220542