Euro Struggles vs Pound on French Unrest, BoE Rate Path

Key Moments

Euro Under Pressure Amid French Political and Social Turmoil

The EUR/GBP cross is trading lower around 0.8420 in Monday’s early European session, with the Euro (EUR) slipping further against the British Pound (GBP). Market participants are reacting to violent protests in France, which are weighing on sentiment toward the single currency. European Central Bank (ECB) official Frank Elderson is scheduled to speak later in the day, drawing additional attention from Euro traders.

According to Reuters, French President Emmanuel Macron used a televised national address on Sunday to condemn the “shocking” scenes of violence that erupted during demonstrations over rising living costs, following what was described as one of the country’s most turbulent days of unrest in recent years. The report noted that France experienced the broadest unrest among a wave of protests seen across Europe, with Belgium, Italy, and Portugal also impacted.

“The weekend unrest matters for the euro mainly through French bonds rather than directly,” said Kieran Williams, head of Asia FX at InTouch Capital Markets in London.

UK Data in Focus as Markets Price in BoE Tightening

Attention is now turning to upcoming UK macroeconomic releases that could shape expectations for Bank of England (BoE) policy. Traders are preparing for labor market data on Tuesday, followed by the Consumer Price Index (CPI) inflation report on Wednesday. These releases are seen as critical inputs that could confirm the case for what would be the first BoE rate increase in more than three years, anticipated in November.

“We expect a 25-basis-point hike at the central bank’s next meeting in November. We also see another move in February,” said Bloomberg Economics chief UK economist Dan Hanson.

Consensus projections point to the UK Unemployment Rate edging up to 5.0% (3M) in August from 4.9% previously. Headline CPI is expected to advance 3.4% YoY in September, while core CPI is forecast to climb 2.7% YoY over the same period.

ECB Faces Tightrope Between Underreaction and Overtightening

Analysts at Rabobank highlight that the latest remarks from ECB policymaker Wunsh emphasize the central bank’s challenge in calibrating policy. They note that Wunsh “confirmed that the recent rise in longer-dated yields does not necessarily prevent some further rate hikes,” implying that recent moves in market rates alone are unlikely to halt additional tightening.

Rabobank stresses that letting inflationary forces accumulate unchecked “would mean the central bank has fallen behind the curve, and policymakers will be wary of making a similar mistake as the previous energy shock.” At the same time, they argue that “acting more forcefully before such evidence materializes would meaningfully increase the risk that the ECB errs on the side of too tight monetary policy,” underscoring the need for careful judgment on how far to push further rate increases.

BoE’s Bailey Keeps Pound Supported, But Tone Slightly Softer

The stance of the Bank of England also remains a key driver for GBP. According to FXS Speechtracker, Governor Andrew Bailey’s latest speech received a score of 6.2/10, marginally below his historical average of 6.4/10, suggesting a slightly softer communication tone even as he continued to voice concern over persistent inflation above target.

Emphasis that second-round inflation effects are still “too early” to assess and currently “subdued” as businesses prioritize cost reductions is interpreted as mildly dovish, given it downplays the risk of an imminent wage-price spiral and may limit aggressive upside for GBP.

At the same time, his comment that the UK economy is “more resilient than we expected, not as strong as we need” keeps the prospect of a prolonged period of restrictive policy in play, offering underlying support to the Pound. Bailey’s observation that developments in the Middle East are the dominant factor for UK gilt yield moves suggests that near-term GBP dynamics may be driven more by global risk sentiment and rates than by a clear new policy signal from the BoE.

Technical Picture: EUR/GBP Remains Bearish Despite Oversold Signals

From a technical standpoint, EUR/GBP continues to display a pronounced bearish tone on the daily chart. The pair is trading firmly below the 100-day Simple Moving Average (SMA) and under the 20-day middle line of the Bollinger Bands, reinforcing the negative momentum. Price action is sliding toward the lower Bollinger Band, while the Relative Strength Index (RSI) around 22 indicates deeply oversold conditions, suggesting persistent downward pressure even as additional short positions may start to look stretched.

On the upside, the first notable resistance comes at the 20-day Bollinger Bands SMA near 0.8505, with the 100-day SMA at 0.8565 forming an additional supply area. A more substantial barrier is seen around the upper band at 0.8630. On the downside, the lower Bollinger Band at 0.8385 acts as the initial significant support zone; a clear and sustained move beneath this level would signal scope for a further extension of the current downtrend.