Euro weakens against British Pound as attention turns to inflation data and BoE

• April 2025 lows remain in view for EUR/GBP as the Euro finds little scope for recovery.
• The British Pound draws support against the Euro from French fiscal risks and expectations of a BoE interest rate rise.
• Eurozone inflation and PMI releases take centre stage before Thursday’s BoE decision.

Trading at around 0.8336 at the time of writing, EUR/GBP is down 0.11% on Tuesday, reversing part of the previous day’s modest advance. Monday’s sharp fall in oil prices had eased pressure on the energy-dependent Eurozone, lending support to the Euro (EUR).

A Wall Street Journal (WSJ) report that Washington had conducted limited strikes on Iran’s Qeshm Island has prompted a recovery in oil prices. West Texas Intermediate (WTI) is up 2.45%, trading above $97, following a loss of nearly 7% on Monday. That earlier fall came after reports that Iran’s President said the Supreme Leader had given the government greater authority over negotiations.

Heightened concerns over France’s fiscal position continue to favour the British Pound (GBP) over the single currency, leaving the Euro close to levels last recorded in April 2025. With few economic releases scheduled for Tuesday, traders remain focused on developments in the Middle East and changes in oil prices.

Wednesday brings the final October Services and Composite Purchasing Managers’ Indexes (PMIs) for both the Eurozone and the United Kingdom. Preliminary Eurozone inflation data will also be in focus.

Following those releases, the Bank of England (BoE) will announce its monetary policy decision on Thursday. Policymakers are widely expected to raise rates for the first time since 2023, seeking to stop the Middle East energy shock from spreading into wider price pressures.

The prospect of a BoE rate rise provides further backing for the British Pound against the Euro. If the rate increases to 4%, its differential with the ECB’s 2.50% deposit rate would expand from 125 bps to 150 basis points (bps).

Sterling maintains its lead as EUR/GBP decline raises prospect of consolidation

The market’s belief that “high energy prices leave the Bank of England no alternative but to hike rates on Thursday” is underpinning Sterling, which ING analysts describe as “trading reasonably well,”. Other supportive factors are also at work: in their words, “upside economic surprises, UK fiscal policy seemingly heading in the right direction and warmer ties with the EU all seem to be helping sterling too.” ING also sees positioning as a source of support, noting that “speculators are still running reasonably large short positions in sterling, which suggests this period of sterling outperformance can continue.”

ING nevertheless considers that “some consolidation is probably due”, observing that “EUR/GBP has come a long way very quickly – a near 4% drop in a little over a month,”. The analysts do not yet anticipate a significant low, however, arguing that with “high energy prices likely to keep expectations of higher UK policy rates in place until early next year and French budgetary problems unresolved, it is too early to expect a significant low in EUR/GBP.”