Introduction to EUR/GBP
The EUR/GBP cross is trading on a positive note near 0.8650 during the early European session on Friday. This comes after the release of UK Gross Domestic Product (GDP) data, which showed that the UK economy stalled in July. The Pound Sterling (GBP) remains weak against the Euro (EUR), and traders are waiting for more cues from the speech of the European Central Bank (ECB) policymaker Joachim Nagel.
UK GDP Data
Data released by the Office for National Statistics (ONS) on Friday showed that the UK economy stalled in July, compared to a 0.4% growth in the previous reading. This figure came in line with the estimation, but it still attracted some sellers in an immediate reaction to the discouraging UK GDP report. Additionally, Industrial Production declined 0.9% MoM in July versus a 0.7% rise prior, which was worse than the market consensus of 0%. On an annual basis, the UK Industrial Production came in at 0.1% in July, following a 0.2% increase in June, weaker than the 1.1% expected.
European Central Bank Decision
The ECB held its rate on the so-called deposit facility at 2.0% at its September policy meeting on Thursday and maintained an upbeat view on growth and inflation. Traders raise bets that the ECB is done cutting rates, which could underpin the shared currency in the near term. Money markets are currently pricing in nearly a 40% odds of one last rate reduction by next spring, less than before the rate decision.
Understanding the Euro
The Euro is the currency for the 19 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. The EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%), and EUR/AUD (2%).
How the European Central Bank Works
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. Its primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. The ECB’s 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.
Factors that Influence the Euro
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. Data releases that gauge the health of the economy, 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, as it attracts more foreign investment and may encourage the ECB to put up interest rates, which will directly strengthen the Euro.
Conclusion
In conclusion, the EUR/GBP cross is currently trading on a positive note near 0.8650, driven by the release of UK GDP data and the ECB’s decision to hold rates unchanged. Understanding the Euro, how the European Central Bank works, and the factors that influence the Euro can help traders and investors make informed decisions. The Euro is a significant currency, and its value can be affected by various economic indicators and data releases. As the global economy continues to evolve, it is essential to stay informed about the latest developments and trends in the foreign exchange market.
