EUR/GBP softens to near 0.8800 ahead of UK Retail Sales, PMI releases

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EUR/GBP weakens to near 0.8815 in Friday’s early European session.
The BoE is expected to cut interest rates in December.
The ECB’s cautious tone could support the Euro against the Pound Sterling.

The EUR/GBP cross trades in negative territory around 0.8815 during the early European session on Friday. The Pound Sterling (GBP) edges higher against the Euro (EUR) despite growing expectations of a Bank of England (BoE) rate cut at its next monetary policy meeting in December. Traders await the flash Eurozone HCOB Purchasing Managers Index (PMI) data later on Friday. Also, the flash UK S&P Global PMI and Retail Sales reports will be released.

Heightened speculation of an interest rate cut by the BoE at its next monetary policy meeting in December and UK fiscal concerns could weigh on the GBP and act as a tailwind for the cross. Traders boosted expectations for a BoE rate cut next month. Interest rate swaps data showed an 87% chance in favor of a fourth and final BoE rate reduction for the year, up from 76% last week, according to Reuters.

Additionally, uncertainty and pessimism surrounding the UK's autumn budget could weaken sentiment towards the Pound Sterling against the Euro. The UK government's Autumn Budget is scheduled for November 26 and is likely to influence the decision to wait, as the BoE awaits more clarity on its potential impact on the economy.

Traders will take more cues from the UK Retail Sales report. Any signs of hotter-than-expected inflation in the UK economy could lift the GBP against the EUR in the near term. The UK Retail Sales are expected to stay at 0% in October, compared to 0.5% in the previous reading.

The cautious remarks from the European Central Bank (ECB) might also underpin the EUR. The ECB is widely anticipated to leave the key interest rates unchanged through the end of 2026, with inflation hovering near its 2% target, stable economic growth, and unemployment at record lows. ECB Governing Council Gabriel Makhlouf said on Thursday that the current monetary policy is appropriate and any adjustment is unlikely, unless there is a material change.

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.