Euro Holds Edge Over Sterling Despite Surprise UK Growth

Key Moments

EUR/GBP Steadies After Initial Move on UK Data

The EUR/GBP pair is consolidating around 0.8465 during early European trading on Thursday, as earlier euro gains fade against a modest recovery in the British Pound following fresh UK macroeconomic releases. Market participants are also awaiting Eurozone Industrial Production figures and the German Bundesbank Monthly Report later in the session, while comments from Bank of England (BoE) policymaker Sarah Breeden are on the radar.

UK Growth and Production Beat Expectations

Data from the Office for National Statistics (ONS) showed that UK Gross Domestic Product rose 0.1% month-on-month in August, following a 0.4% increase in July. The outcome surprised to the upside versus market forecasts for a 0.1% decline.

Industrial Production in the UK climbed 0.8% month-on-month in August, and Manufacturing Production advanced 1.2% over the same period.

Despite the stronger growth and production figures, the British Pound is seeing only limited support against the euro. The data arrive as the conflict in the Middle East unsettles the global backdrop and exerts additional pressure on UK households and companies through higher energy costs.

Euro Faces French Fiscal Concerns and ECB Outlook

Sentiment toward the euro is being tested by worries around French public finances. According to Citi analysts, rising fiscal risks in France could encourage the European Central Bank to halt rate increases after December, or even sooner if financial strains extend more broadly across the Eurozone.

A Reuters poll indicates that the ECB is expected to leave its deposit rate unchanged at 2.50% in October, before delivering a 25 basis point rise in December as inflation continues to run at nearly twice the central bank’s 2% objective.

ING Sees Constructive GBP Outlook as BoE Stance Supports Sterling

Analysts at ING have turned more favorable on the British Pound, stating that they have “lowered our EUR/GBP forecast and now expect the pair to trade in a 0.84-0.85 range for at least several more months.” They emphasize that “idiosyncratic risks surrounding the euro are unlikely to fade anytime soon,” while the BoE “has sent a clear enough signal that it is prepared to hike,” which they see as a supportive factor for GBP.

ING notes that “we still think BoE rate expectations are too hawkish for 2027 (100bp by July),” but also that “one or two hikes are looking increasingly likely.” The bank adds that, in its assessment, “the dovish shift may have to wait until well into 2027, underpinning GBP strength” over the medium term.

On the fiscal front, ING highlights the “UK budget on 28 October” as “a potential risk for sterling, as markets are pricing in little fiscal concern.” Nevertheless, its analysts point out that “Chancellor John Healey and Prime Minister Andy Burnham have appeared mindful of market sensitivities,” and that while “the budget will be closely scrutinised,” they “do not currently expect it to trigger significant bond volatility or leave a lasting negative mark on GBP.”

EUR/GBP Technical Picture: Bearish Bias Persists

From a technical standpoint, the EUR/GBP daily chart continues to signal downside pressure, with spot trading below both the 20-period simple moving average from the Bollinger Bands and the 100-period moving average. This positioning keeps the broader trend constrained to the downside.

The pair is fluctuating nearer the lower Bollinger band than the upper band, while the 14-period Relative Strength Index stands at 31.2, hovering just above oversold territory. This setup points to ongoing negative momentum, but also suggests that a brief corrective rebound could emerge if selling pressure eases.

On the upside, the first notable resistance is located at the Bollinger middle band around 0.8520, followed by the 100-period moving average near 0.8570. A more robust ceiling is seen at the upper Bollinger band close to 0.8636. On the downside, the lower Bollinger band at 0.8410 represents the next important support area; a decisive move beneath this threshold would pave the way for new lows within the prevailing bearish pattern.