Euro Slides vs Pound as Markets Await German IFO Data

Key Moments

Euro Under Pressure as EUR/GBP Rally Loses Momentum

EUR/GBP is holding near 0.8650 during Asian trading on Friday, extending its advance for a fifth straight session. Despite the upward streak, the pair is trading with a restrained tone as the Euro (EUR) remains soft ahead of a slate of closely watched German economic releases. These include the June GfK Consumer Confidence Survey, first-quarter GDP data, and the IFO Business Survey, all scheduled for later in the day.

The Euro has come under notable pressure after markets reacted to a weaker-than-expected outlook for the Eurozone economy. Traders are reassessing growth prospects as incoming survey data point to renewed contraction across the bloc.

Eurozone PMI Signals Sharpest Contraction Since Late 2023

According to S&P Global’s flash Purchasing Managers’ Index (PMI) figures released on Thursday, economic activity across the Euro Area declined in May at the fastest pace since late 2023. The downturn has been linked to a surge in living expenses driven by ongoing conflict, which has dampened demand for services and pushed input price inflation to its highest level in three years.

The combination of weaker activity and rising costs has added to concerns about the Eurozone’s near-term growth trajectory and weighed on the Euro against the British Pound.

Pound Supported by Consumer Sentiment, Hurt by Business Slowdown

On the UK side, downside pressure on EUR/GBP has been partly limited as the British Pound (GBP) softened following the latest consumer confidence figures. The GfK Consumer Confidence Index for May 2026 rose to -23 from -25 in April, which had been the lowest reading since October 2023 amid persistent concerns about the Iran war. The improvement surpassed the market forecast of -28, suggesting households had become slightly less downbeat about the outlook.

However, the underlying tone remained cautious. GfK consumer insights director Neil Bellamy cautioned that the uptick was unlikely to mark a sustained recovery in overall sentiment.

In contrast to the marginal improvement in consumer attitudes, UK business activity deteriorated markedly. Thursday’s S&P Global Composite PMI for May fell to 48.5 from 52.6, sharply below the consensus estimate of 51.7. This move below the 50 threshold signaled a contraction in private-sector activity and reinforced concerns that the UK economy could face further weakness under pressure from the Middle East conflict.

Chris Williamson, chief business economist at S&P Global Market Intelligence, noted that the UK economy is facing a perfect storm as rising political uncertainty adds to the growing impact from the war in the Middle East.

BoE Policy Tone Clashes With Softening Data

Despite accumulating signs of a slowdown, communication from the Bank of England (BoE) remained firmly on the hawkish side. A member of the BoE Monetary Policy Committee aligned with the tightening camp, reinforcing expectations for a restrictive policy stance even as survey indicators flag a stalling economy. This created a notable contrast between the central bank’s policy bias and weakening macro data.

BoE Governor Andrew Bailey also spoke during the session, though his remarks did not significantly influence market pricing or shift sentiment in the currency market.

Focus Turns to Germany’s IFO Business Climate Survey

Attention in the Euro market is now centered on Germany’s IFO Business Climate index, one of the most closely watched gauges of sentiment in the region’s largest economy. The indicator is compiled by the CESifo Group through a survey of more than 7,000 firms, capturing their assessment of current conditions and short-term business plans.

Stronger readings are typically associated with expectations of positive economic growth and tend to support the Euro, while weaker outcomes are generally viewed as negative for the currency.

Upcoming IFO Release – Snapshot

Market participants will closely monitor the upcoming IFO figures, alongside the German GfK and GDP data, for fresh direction on the Euro and to gauge whether the recent deterioration seen in Eurozone PMI surveys is being echoed in broader business sentiment.