Why is the Euro wavering in a range against the British Pound despite upbeat German factory data?

• EUR/GBP remains near the midpoint of its weekly range at around 0.8340.
• The Euro has drawn little support from stronger German Industrial Production figures.
• Expectations of additional BoE interest rate increases continue to underpin the Pound.

Risk aversion is restraining EUR/GBP buyers on Friday, leaving the Euro (EUR) without a clear direction against the British Pound (GBP). Despite encouraging German Industrial Production data published earlier in the day, the Euro has made little headway. The pair is trading just above 0.8340, midway through the 0.8320-0.8360 range seen over the past few days.

Growth in German Industrial Production picked up to 0.7% in September from 0.1% in August, according to figures published earlier on Friday, surpassing market forecasts for an unchanged reading. Automotive and pharmaceutical production led the gains, the report showed. By contrast, output fell in construction and in machinery and equipment manufacturing.

A September decline of 0.1%, reversing August’s 0.1% increase, is forecast for the Eurozone Retail Sales report due from Eurostat later on Friday. These figures are unlikely to lend support to the Euro unless they come in substantially above expectations.

Can expectations of BoE tightening continue to cushion the Pound?

Investors’ expectations were met in the UK when the Bank of England (BoE) raised interest rates for the first time in more than three years, taking the Bank Rate to 4%. Some policymakers also signalled that further monetary tightening could follow. Governor Andrew Bailey echoed that assessment at the subsequent press conference.

Although the decision elicited little reaction from the Pound, the risk-averse market has helped it hold steady near 19-month lows against the Euro so far. A de-escalation in the Iran war poses a risk in this context: lower oil prices would likely raise questions over the BoE’s commitment to tightening, weakening the Pound and probably helping the Euro recover.