The Euro (EUR) strengthened against the Pound Sterling (GBP) during early European trading on Thursday, with the EUR/GBP cross advancing toward 0.8495. The move came as the Pound weakened in response to worse-than-expected UK growth data, intensifying speculation around potential Bank of England (BoE) rate cuts.
According to figures released by the UK’s Office for National Statistics (ONS), the British economy contracted by 0.3% month-on-month in April, reversing a 0.2% expansion recorded in March. The reading fell short of economists’ forecast for a 0.1% decline, reinforcing concerns about slowing economic momentum.
Industrial production also underwhelmed, shrinking by 0.6% in April compared to a downwardly revised 0.7% fall in March. This print came in softer than the expected 0.5% contraction, further underscoring weakness in the UK’s manufacturing sector.
Sterling Pressured as BoE Policy Outlook Shifts
The latest UK GDP miss, when combined with lackluster labour market data earlier this week, has heightened expectations that the BoE could cut interest rates more aggressively than previously projected. Investors are beginning to price in a more dovish shift from the central bank in response to signs of economic fragility.
The immediate market reaction saw the Pound come under pressure, helping the Euro to rise against its British counterpart.
Hawkish ECB Tone Offers Support to Euro
On the Eurozone side, the Euro found additional support from hawkish remarks made by European Central Bank (ECB) President Christine Lagarde. Speaking after last week’s policy meeting, Lagarde suggested that the ECB may be nearing the end of its rate-cutting cycle. She reiterated this stance over the weekend, stating that interest rates are now in a “good position” despite high levels of global uncertainty, particularly surrounding the economic implications of US President Donald Trump’s latest tariff threats.
Investors will now turn their attention to a series of ECB policymaker speeches scheduled for later on Thursday, which may provide further insight into the central bank’s future policy direction.
Outlook
The EUR/GBP pair may continue to edge higher in the near term as bearish sentiment surrounding the Pound persists. However, further gains for the Euro will likely hinge on the tone of upcoming ECB speeches and broader risk sentiment tied to global trade developments.
