The Euro (EUR) is weakening against the British Pound (GBP) for a second day in a row. On Wednesday, the EUR/GBP exchange rate trades near 0.8643, recovering slightly after hitting its lowest point since late August.
Markets remain cautious as traders wait for the European Central Bank’s (ECB) policy decision on Thursday, a key event that could drive the next move for the Euro.
ECB Policy Outlook: Rates Likely on Hold
Economists widely expect the ECB to keep interest rates unchanged, with the deposit rate steady at 2.0%. After several cuts earlier this year, inflation across the Eurozone has fallen close to the ECB’s 2% target, while wage growth is also easing.
ECB President Christine Lagarde is expected to highlight a data-dependent strategy, signaling flexibility in case economic conditions worsen. This cautious approach is limiting investor confidence in the Euro.
Political Unrest and Security Tensions Pressure the Euro
Beyond interest rate policy, the Euro faces additional headwinds from politics and security:
•France: The appointment of Sébastien Lecornu as Prime Minister has not calmed protests. Demonstrations known as “Block Everything” continue, driven by anger over budget cuts and fiscal tightening.
•Poland/NATO: Poland triggered NATO’s Article IV after Russian drones violated its airspace, calling for emergency talks. The event raises fresh security concerns across Europe.
These developments are fueling risk aversion and further weighing on the Euro.
Pound Outlook: UK Data Ahead of BoE Meeting
The British Pound is holding firm, supported by anticipation of key UK data releases. On Friday, investors will watch closely for GDP, Industrial Production, and Manufacturing Production figures for July.
•Strong numbers could strengthen expectations that the Bank of England (BoE) will keep rates higher for longer.
•Weak results could underline the trade-off between persistent inflation and slowing growth.
The BoE, which cut rates by 25 basis points in August, is expected to hold steady at 4.0% in September. Policymakers face a tough balance between stubborn core services inflation and signs of weaker hiring and demand.
EUR/GBP Technical and Market Outlook
With the ECB expected to pause and political uncertainty rising, the Euro remains under pressure. By contrast, if UK data comes in strong, the Pound may extend its advantage, potentially pushing the EUR/GBP pair lower toward the 0.8600 support level. Resistance is seen near 0.8700, where sellers could re-emerge.
Bottom Line
The Euro to Pound outlook remains bearish in the short term as investors focus on the ECB decision, political risks in France, and NATO tensions in Eastern Europe. Meanwhile, stronger UK data could provide the Pound with fresh momentum ahead of next week’s BoE meeting.
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