Mixed Eurozone data: Euro pares gains against British Pound

• Mixed Eurozone figures cap Euro upside as EUR/GBP surrenders part of its earlier advance.
• Third-quarter Eurozone employment stalls even as economic growth holds steady.
• The Pound draws support from firmer UK growth and expectations of a hawkish BoE.

EUR/GBP is trading around 0.8355 at the time of writing. The pair has retreated from an intraday peak of 0.8363 on Friday, with mixed Eurozone figures curbing the Euro’s (EUR) advance against the British Pound (GBP). It retains a modest gain for the day but remains confined to a narrow range close to its April 2025 lows.

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. That fell short of the forecast 0.2% gain and followed a 0.1% increase in the previous quarter. Year-on-year employment growth eased from 0.5% to 0.4%.

As it gauges the transmission of higher energy costs to prices and wages, the European Central Bank (ECB) reaffirmed this week that rate decisions would be taken meeting by meeting. The latest edition of its Economic Bulletin cautioned that the energy shock could lift inflation and dampen growth. Underlying price pressures, however, have remained largely stable so far.

A 25 basis points increase in the ECB’s deposit rate to 2.75% in December is expected by all 71 economists surveyed in Thursday’s Reuters poll. For most respondents, that would conclude the tightening cycle. Another increase is expected by 25 economists, most likely in early 2027.

Earlier this month, an 8-1 vote at the Bank of England (BoE) delivered a 25 basis points rise in its benchmark rate to 4.00%. Catherine Mann, an external member of the Monetary Policy Committee (MPC), favoured a larger half-point increase.

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 supported as UK rate pricing points above neutral

Further BoE tightening remains firmly priced into UK rate markets, according to strategists at Brown Brothers Harriman. They note that the swaps curve continues to imply “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.”

Despite that risk, 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 accelerated to 0.7% QoQ in the third quarter from 0.5% in the preceding quarter, according to preliminary figures published on Thursday. The annual growth rate rose from 1.4% to 1.9%. Both measures were in line with expectations.