Key Moments
- EUR/GBP trades around 0.8549, ending a three-session losing run despite stronger UK GDP figures.
- Markets largely anticipate another ECB rate increase in September, while many see BoE rates on hold for the rest of the year.
- Investors are now awaiting upcoming UK CPI data for further insight into the Bank of England’s policy stance.
Euro Outperforms Pound Despite Robust UK Growth Data
EUR/GBP moves higher on Thursday as the Euro (EUR) gains traction on expectations of a more hawkish European Central Bank (ECB), overshadowing a solid set of UK growth figures that would normally favor the British Pound (GBP). At the time of writing, the currency pair is trading near 0.8549, breaking a three-day sequence of declines.
Data from the Office for National Statistics show that UK Gross Domestic Product (GDP) increased by 0.3% in June, surpassing market forecasts that had projected flat growth. For the second quarter, the economy expanded by 0.4%, matching expectations but easing from the 0.6% rise recorded in the first quarter. On a year-over-year basis, GDP advanced by 1.2%, ahead of the 1.1% consensus and up from 0.9% previously.
BoE Policy Seen Driven More by Inflation and Labor Market
Analysts at Standard Chartered note that the second-quarter GDP outcome, which exceeded the Bank of England’s (BoE) July projection of “0.3% q/q”, is unlikely to be the dominant factor in shaping monetary policy decisions. They emphasize that “inflation data (which has so far been well behaved) and labour-market data (still soft) are more important inputs to its thinking.” With current policy already considered restrictive, Standard Chartered reiterates its view that it “still expect[s] the BoE [to] keep rates on hold this year.”
Market participants are now turning their attention to next week’s UK Consumer Price Index (CPI) release for additional guidance on the BoE’s future path. At its most recent meeting, a majority of BoE policymakers indicated that the tightening in financial conditions since the onset of the war in the Middle East was offering “sufficient insurance” against inflation risks linked to higher energy costs.
ECB Expectations Turn More Hawkish on Energy-Linked Risks
While those energy-related inflation risks are seen as already addressed by the BoE’s existing stance, they are reinforcing expectations that the ECB will deliver another rate increase in September.
According to a Reuters poll conducted from August 10 to 13, 57 of 69 economists expect the ECB to raise its deposit rate by 25 basis points to 2.50% in September. Around 80% of respondents anticipate the rate will be at 2.50% at year-end, and 63% see it remaining at that level until at least the third quarter of next year.
Euro Performance Against Major Currencies
The following table illustrates the percentage changes of the Euro (EUR) against key global currencies today. The Euro shows its strongest performance versus the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | — | -0.08% | 0.01% | -0.06% | 0.04% | 0.14% | 0.25% | -0.12% |
| EUR | 0.08% | — | 0.09% | 0.02% | 0.09% | 0.23% | 0.31% | -0.05% |
| GBP | -0.01% | -0.09% | — | -0.06% | 0.01% | 0.15% | 0.23% | -0.15% |
| JPY | 0.06% | -0.02% | 0.06% | — | 0.08% | 0.20% | 0.26% | -0.08% |
| CAD | -0.04% | -0.09% | -0.01% | -0.08% | — | 0.12% | 0.21% | -0.16% |
| AUD | -0.14% | -0.23% | -0.15% | -0.20% | -0.12% | — | 0.10% | -0.27% |
| NZD | -0.25% | -0.31% | -0.23% | -0.26% | -0.21% | -0.10% | — | -0.35% |
| CHF | 0.12% | 0.05% | 0.15% | 0.08% | 0.16% | 0.27% | 0.35% | — |
The heat map compares moves across the major currencies. The base currency is selected from the left-hand column and the quote currency from the top row. For instance, choosing the Euro in the left column and moving across to the US Dollar cell shows the percentage change for EUR (base)/USD (quote).
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