The EUR/GBP exchange rate continued its upward trend for the second consecutive session on Friday, trading around 0.8280 during the early European hours. This movement follows the release of disappointing economic data from the United Kingdom (UK) and Germany, influencing market sentiment.
UK data from the Office for National Statistics revealed that the country’s Gross Domestic Product (GDP) contracted by 0.1% month-over-month in October, contrary to the expected 0.1% growth. Industrial Production also fell by 0.6% in October, following a previous decline of 0.5%, and missing the anticipated 0.3% rise. Manufacturing Production similarly declined by 0.6%, well below the expected 0.2% increase, and following a 1% drop in September. These figures highlight the UK’s ongoing economic challenges, which could weigh on the British Pound (GBP).
However, the GBP may find some support, as market expectations suggest the Bank of England (BoE) will likely slow the pace of policy easing compared to other central banks in Europe and North America.
On the other side of the currency pair, data from Germany’s Federal Statistics Office showed a seasonally adjusted trade surplus of €13.4 billion for October, falling short of the expected €16.1 billion and down from September’s €17.0 billion. German exports dropped by 2.8%, while imports saw a slight dip of 0.1%. Despite the weaker trade surplus, the Euro (EUR) continues to hold some strength.
The European Central Bank (ECB) on Thursday followed through with expectations, reducing its Rate on Deposit Facility by 25 basis points to 3.0%, alongside a similar 25 basis point cut in the Main Refinancing Operations Rate to 3.15%. This marks the third consecutive 25 basis point rate cut by the ECB this year.
However, the Euro’s upside could be limited, as ECB President Christine Lagarde acknowledged that the central bank had considered a larger 50 basis point rate cut. She also warned that “risks to growth are tilted to the downside,” citing concerns over trade tensions with the United States that could further dampen growth prospects.
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