Euro’s advance against British Pound eases following mixed Eurozone data

• Mixed Eurozone figures curb the Euro’s advance, leaving EUR/GBP off its earlier highs.
• Steady third-quarter growth in the Eurozone fails to deliver an increase in employment.
• The Pound finds support from firmer UK growth and expectations of a hawkish BoE.

Mixed Eurozone figures are restraining the Euro’s (EUR) rise against the British Pound (GBP) on Friday, prompting EUR/GBP to surrender part of its earlier advance. Although still marginally up on the day, the pair remains confined to a narrow range close to its April 2025 lows. Having retreated from an intraday peak of 0.8363, EUR/GBP is trading at around 0.8355 at the time of writing.

Third-quarter Eurozone Gross Domestic Product (GDP) expanded by 0.4% QoQ and 1.3% YoY, preliminary figures showed, matching expectations on both measures. Employment, however, was unchanged from the preceding quarter, falling short of the forecast 0.2% gain following a 0.1% rise previously. On an annual basis, employment growth eased from 0.5% to 0.4%.

As it examines the transmission of higher energy costs to prices and wages, the European Central Bank (ECB) reaffirmed this week that rate decisions would be taken on a meeting-by-meeting basis. The energy shock could lift inflation and dampen growth, its latest Economic Bulletin cautioned, although underlying price pressures have remained broadly steady so far.

A 25 basis point increase in the ECB’s deposit rate to 2.75% in December is expected by all 71 economists surveyed in Thursday’s Reuters poll. While most anticipate that this will conclude the tightening cycle, 25 forecast a further rise, most likely in early 2027.

In the UK, an 8-1 vote saw the Bank of England (BoE) lift its benchmark rate by 25 basis points to 4.00% earlier this month. Catherine Mann, an external member of the Monetary Policy Committee (MPC), favoured a larger half-point rise.

Speaking earlier this week, BoE Deputy Governor Clare Lombardelli said the “balance of risks to inflation remains to the upside.” In her assessment, the “energy shock has become more persistent,” increasing the “prospect of second-round effects.”

Pound draws support as UK rate expectations point to BoE tightening beyond neutral

Further BoE tightening remains firmly embedded in UK rate-market pricing, according to strategists at Brown Brothers Harriman. They note that the swaps curve continues to signal “about 70% odds of a back-to-back 25bps hike to 4.25% on December 17, and a total of 85bps of tightening over the next twelve months.” In their view, that trajectory “would push the policy rate well above the BoE’s estimated 2-4% neutral range, raising the risk of a sharper growth slowdown ahead.”

Even so, BBH maintains that “for now, resilient UK economic activity reinforces the case for additional BoE hikes, which is GBP positive, especially against EUR.”

UK GDP growth reached 0.7% QoQ in the third quarter, compared with 0.5% in the preceding quarter, according to preliminary figures published on Thursday. The annual growth rate also picked up, from 1.4% to 1.9%, with both readings in line with expectations.