Euro stays on the back foot against British Pound as ECB leaves rates unchanged

• The Euro remains under pressure against the Pound following the ECB’s decision to hold interest rates steady.
• Support for the British Pound comes from receding Budget worries and expectations of a BoE rate increase in November.
• Friday’s Eurozone growth figures and German inflation release are next in focus.

Pressure on EUR/GBP persists on Thursday, with the British Pound (GBP) outperforming its major peers as the European Central Bank’s (ECB) monetary policy announcement offers no support to the Euro (EUR). Trading around 0.8358 at the time of writing, the cross is down 0.14% on the day and close to levels last recorded in April 2025.

All three of the ECB’s key interest rates were left on hold, in line with broad expectations. The deposit facility rate stood at 2.50%; rates on the main refinancing operations and marginal lending facility were maintained at 2.65% and 2.90%, respectively.

Higher energy prices could push inflation upwards and weigh on growth, the central bank cautioned in its policy statement. It nevertheless observed that underlying inflation had so far been largely stable, with scant evidence of a material wage response to the energy shock. Ensuring that inflation stabilises at the 2% target over the medium term remains the Governing Council’s policy commitment.

Speaking at the press conference after the meeting, ECB President Christine Lagarde noted that “most gauges of long-term inflation expectations” were close to 2%, even as she said “energy prices have risen beyond baseline,”. She also cautioned that “fiscal uncertainty may further tighten financial conditions.” At the same time, she said the “ECB is unanimously seen as well positioned”.

Traders remain unsure about a December rate hike following the ECB’s cautious approach, as policymakers weigh inflation risks against the dangers to growth. Fiscal uncertainty in France complicates that assessment, though most economists continue to anticipate a further rate increase before year-end.

Broad-based gains in the British Pound come as concerns over the Budget subside. On Wednesday, UK Chancellor John Healey reaffirmed the government’s commitment to its fiscal rules in the Autumn Budget. Sterling also draws support from expectations that the Bank of England (BoE) could increase interest rates on November 5.

Friday’s releases will now draw market attention: the Eurozone’s preliminary third-quarter GDP and unemployment figures, together with Germany’s preliminary Consumer Price Index (CPI) for October.