Mixed Eurozone data leave Euro with smaller gains against British Pound

• EUR/GBP gives up part of its gains as uneven Eurozone readings cap the Euro's advance.
• Steady Eurozone economic growth fails to lift employment in the third quarter.
• The Pound draws support from firmer UK growth and expectations of a hawkish BoE stance.

EUR/GBP is giving up part of Friday’s earlier advance, with mixed Eurozone figures limiting the Euro’s (EUR) gains against the British Pound (GBP). Still marginally up for the day, the cross continues to trade within a narrow band close to its April 2025 lows. Having retreated from an intraday peak of 0.8363, EUR/GBP is trading near 0.8355 at the time of writing.

Employment in the Eurozone was unchanged in the third quarter, according to preliminary figures, falling short of expectations for a 0.2% increase following the previous quarter’s 0.1% rise. Year-on-year employment growth eased from 0.5% to 0.4%. Meanwhile, Gross Domestic Product (GDP) expanded 0.4% QoQ and 1.3% YoY in the third quarter, with both figures matching forecasts.

As it evaluates 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. Although underlying price pressures have remained broadly stable so far, its latest Economic Bulletin cautioned that the energy shock could lift inflation and dampen growth.

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 regard this as the cycle’s last hike, 25 anticipate a further increase, most likely in early 2027.

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

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.”

Can expectations of BoE rates above neutral keep supporting the Pound?

Further BoE tightening remains firmly priced into UK rate markets, according to strategists at Brown Brothers Harriman. They say 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, this 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.”

For the present, however, 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 expansion picked up to 0.7% QoQ in the third quarter from 0.5% in the preceding quarter, preliminary figures published on Thursday showed. Growth on an annual basis also strengthened, reaching 1.9% from 1.4%. Both measures were in line with expectations.