Euro holds gains against British Pound as UK GDP slows in Q2
- EUR/GBP posts modest gains around 0.8540 in Thursday’s early European session.
- UK economy grew by 0.4% QoQ in the second quarter, as expected.
- Traders are anticipating an ECB rate hike in September.
The EUR/GBP cross holds positive ground near 0.8540 during the early European trading hours on Thursday. The British Pound (GBP) remains weak against the Euro (EUR) following the UK economic data. Attention will shift to the preliminary reading of the Eurozone Gross Domestic Product (GDP), which is due later on Friday.
Data released by the Office for National Statistics on Thursday showed that the UK economy grew by 0.4% QoQ in the second quarter (Q2) of 2026, compared to a 0.6% growth in Q1. This figure came in line with market expectations. On an annual basis, the UK GDP expanded 1.2% year-over-year (YoY) in Q2 2026 versus a 0.9% growth prior, stronger than the 1.1% expected.
The monthly UK GDP rose by 0.3% in June, compared to 0% in May (revised from 0.1%), above the market consensus of 0%. The mixed UK GDP growth report has little to no impact to the GBP against the EUR.
On the Euro front, the European Central Bank (ECB) is expected to raise interest rates by 25 basis points (bps) at its September monetary policy meeting. ECB president Christine Lagarde warned last month that renewed Middle East hostilities and the resultant rebound in oil prices pose upside risk to the Eurozone inflation outlook.
UK growth momentum seen fading as energy squeeze hits in Q3
Economists at Deutsche Bank caution that the recent strength in the UK economy is unlikely to be sustained through the remainder of the year. They note that, “while the UK economy has been on a tear lately, some slowdown remains likely – reflecting recent patterns in GDP data (i.e. a strong start, followed by a weaker more subdued second half).” In their view, the “energy crisis will likely catch up with households and business in Q3-26, as dual fuel bills rise,” pointing to higher utility costs as a key headwind to activity after a robust first half.
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
