The Euro (EUR) extended its rally against the Pound Sterling (GBP) on Thursday, with EUR/GBP trading near 0.8810, its highest level since May 2023. The move comes as stronger-than-expected Eurozone GDP data boosts confidence ahead of the European Central Bank’s (ECB) policy decision, while the Pound remains under pressure amid renewed concerns over the UK’s economic outlook.
Euro Gains on Solid Eurozone GDP Data
Preliminary data showed the Eurozone economy grew by 0.2% in the third quarter, surpassing market expectations of 0.1% growth. On an annual basis, GDP rose 1.3%, slightly below the previous 1.5%, but still above the projected 1.2%.
Although Germany’s economy stagnated during the period, the broader bloc’s resilience helped strengthen the Euro, reinforcing the view that the ECB may maintain a steady policy stance for now.
The ECB is widely expected to keep its deposit rate unchanged at 2.0% for the third consecutive meeting. Markets will closely watch President Christine Lagarde’s comments for any hints about the future path of interest rates. According to analysts at TD Securities, the ECB appears “comfortable with its current policy stance but remains ready to respond if new risks arise.”
Pound Weakens on Fiscal and Monetary Concerns
The Pound Sterling continues to face headwinds after reports suggested that the UK Office for Budget Responsibility (OBR) has revised its productivity growth forecasts lower by 0.3%, potentially widening the fiscal gap by £20 billion.
This comes ahead of Chancellor Rachel Reeves’ Autumn Budget on November 26, heightening speculation that the Bank of England (BoE) could adopt a more dovish approach. Market pricing now suggests a 68% chance of a 25-basis-point rate cut in December, while Goldman Sachs expects the first rate cut as early as next week.
Outlook: Policy Divergence Supports EUR/GBP
The growing contrast between Eurozone stability and UK fiscal challenges continues to underpin the Euro’s strength against the Pound. Traders anticipate heightened volatility later in the session as the ECB policy statement and Lagarde’s remarks shape expectations for both currencies.
At current levels around 0.8810, EUR/GBP remains poised to test higher resistance if Lagarde’s tone leans less dovish than expected.