Euro remains firm against British Pound after UK growth data

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The EUR/GBP cross holds positive ground near 0.8475 during the early European trading hours on Thursday. The British Pound (GBP) weakens against the Euro (EUR) following the UK economic data.

EUR/GBP gains ground to around 0.8475 in Thursday’s early European session.
UK GDP grew by 0.1% MoM in May, as expected.
Oil-driven inflation concerns could prompt the BoE to maintain a hawkish stance.

The EUR/GBP cross holds positive ground near 0.8475 during the early European trading hours on Thursday. The British Pound (GBP) weakens against the Euro (EUR) following the UK economic data.

Data released by the Office for National Statistics (ONS) showed on Thursday that the UK economy expanded by 0.1% MoM in May, following a 0.1% decline reported in April. This figure came in line with the market expectations.

Meanwhile, the monthly Industrial Production fell by 0.5% in May, versus a 0.2% rise prior, below the consensus of -0.1%. Manufacturing Production increased by 0.1% MoM in May, compared to a rise of 0.5%, stronger than the forecast of -0.2%.

The mixed UK economic data have little to no impact on the British Pound. However, traders still ramp up their bets on rate hikes from the Bank of England (BoE) this year, given the expected impact on inflation from higher oil prices.

Money markets are fully pricing in a hike by the November policy meeting, with a second rate hike priced in by April 2027, according to Reuters.

On the Euro front, European Central Bank (ECB) President Christine Lagarde emphasized that the central bank remains strictly data-dependent. The official policy account explicitly noted that the June hike was neither a guaranteed sequence nor a guaranteed one-off move. On Wednesday, ECB Governing Council member Martin Kocher said that the central bank prepared to implement monetary policy measures whenever necessary.

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.