Euro weakens against British Pound on soft German Retail Sales, traders await BoE rate decision

EUR/GBP softens to near 0.8345 in Tuesday’s early European session.
The BoE is set to hike the interest rate at its November policy meeting on Thursday.
German Retail Sales unexpectedly fell by 2.0% MoM in September.

The EUR/GBP cross trades with mild losses around 0.8345 during the early European trading hours on Tuesday. The British Pound (GBP) strengthens against the Euro (EUR) amid hawkish rate expectations from the Bank of England (BoE).

The BoE is likely to raise the Bank Rate to 4.0% from 3.75% at its November policy meeting on Thursday, according to economists polled by Reuters. This would be its first hike since August 2023, when inflation was still more than the BoE’s 2% target.

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Traders will take more cues from the BoE Governor Andrew Bailey’s press conference. Any hawkish comments from the BoE policymakers could boost the British Pound (GBP) in the near term.

"While we don't expect a clear steer from the Committee on how many hikes they're planning, it's possible that the meeting minutes or Bailey ... signal that Bank Rate is unlikely to reach the level that is priced in by financial markets," said Alexander Harvey, UK economist at consultancy Oxford Economics.

Weaker-than-expected German Retail Sales data could weigh on the EUR. The figure fell by 2.0% MoM in September, versus a rise of 1.2% prior, below the market consensus of a 0.4% growth. On an annualized basis, Retail Sales arrived at -2.3% in September, compared to a 0.3% decline in August.

BoE seen kicking off tightening cycle but guidance may cap Pound gains

Strategists at Brown Brothers Harriman note that the upcoming “Bank of England (BoE) policy decision and Monetary Policy Report (MPR)” on Thursday is widely expected to mark the start of a new tightening phase, with the BoE “widely expected to start tightening with a 25bps hike to 4.00% after standing pat all year.” They point out that “firmer UK inflation and economic activity back the move,” while the vote is anticipated to split “7-2 with doves Alan Taylor and Swati Dhingra supporting a hold.”

However, BBH cautions that “BoE guidance and the updated MPR will test market expectations for 100bps of tightening over the next twelve months.” In their view, “persistent spare capacity across the forecast horizon would strengthen the case for pricing out hikes and limit GBP upside,” suggesting that even a hawkish policy shift may not translate into sustained Pound strength if the Bank’s projections remain subdued.

BoE’s Greene flags stalled wage disinflation, keeping GBP rate hike risks alive

BoE’s Greene speech scores 7.4 on FXS Speechtracker, exactly in line with Greene’s historic average, but the emphasis on stalled wage disinflation and greater risk of second-round effects marks a clear hawkish tilt. Greene’s focus on pay growth nearer 3.5%, wage disinflation stuck above levels consistent with 2% inflation, and an economy showing surprising resilience suggests limited appetite for rapid rate cuts and supports a firmer GBP bias.

The remark that labor market slack may have peaked reinforces the idea that underlying inflation pressures could persist, validating Greene’s call to proactively lean against second-round effects. Overall, the speech backs a narrative of sticky wage dynamics and resilient demand, which is supportive for GBP yields and keeps upside risks for the currency intact.

Technical Analysis: EUR/GBP retains a bearish vibe amid oversold conditions

In the daily chart, EUR/GBP remains under clear bearish pressure as price sits below the 20-period Bollinger middle band and the 100-day moving average, keeping rallies capped by a dense overhead cluster. The Relative Strength Index (14) around 22.7 is embedded in oversold territory, which hints that while downside momentum is still strong, the pair could be vulnerable to short-covering bounces rather than a sustained recovery unless key resistance is reclaimed.

On the topside, initial resistance appears at the Bollinger middle band near 0.8405, followed by the upper band around 0.8500, while the 100-day moving average at 0.8535 marks a more significant barrier for any corrective advance. On the downside, the lower Bollinger band at approximately 0.8310 offers immediate support; a decisive break below this level would open the door to a continuation of the downtrend toward fresh lows.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

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