The EUR/GBP cross trades with mild gains near 0.8660 during the early European session on Thursday. The lack of top-tier UK economic data releases this week has left the Pound Sterling (GBP) without strong domestic drivers against the Euro (EUR). The preliminary reading of Gross Domestic Product (GDP) from the Eurozone and Germany will be in the spotlight later on Friday, along with the German inflation data.
The Bank of England (BoE) is widely expected to hold the key interest rates steady at its next meeting on February 5. Further gradual rate cuts are anticipated this year. However, recent hotter-than-expected UK inflation data and strong Retail Sales figures could limit the pace of future rate reductions from the BoE. This, in turn, could provide some support to the GBP and act as a headwind for the cross.
According to all but two economists polled by Reuters, the UK central bank will hold its benchmark interest rate at 3.75% at its February meeting, with only a small majority now expecting it to fall to 3.50% in March following a slew of better economic news.
The European Central Bank (ECB) has held borrowing costs steady since June 2025 as inflation hovers around their 2% target. However, the Eurozone could face some challenges from US President Donald Trump’s demands over Greenland and renewed tariff threats, which might weigh on the EUR.
The ECB account published last week revealed that ECB officials urged total flexibility if the outlook changes or a major shock hits. Meanwhile, ECB Governing Council member Martin Kocher said on Tuesday that the central bank needs to keep all options available due to the unstable global backdrop, particularly on trade.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day.
EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy.
The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control.
Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency.
A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall.
Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro 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 then its currency will gain in value 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.
Source: https://www.fxstreet.com/news/eur-gbp-holds-positive-ground-above-08650-traders-await-eurozone-german-gdp-data-on-friday-202601290703
