- EUR/GBP gains traction near 0.8380 in the early Asian session on Friday, rising 0.11% on the day.
- Germany’s HICP inflation remained stable at 1.8% year-on-year in September, as expected.
- UK GDP grew 0.2% month-on-month in August, meeting estimates.
The EUR/GBP cross is trading on a stronger note around 0.8380 on Friday during the early European trading hours. The Euro (EUR) remains firm following the release of German inflation data and UK growth figures. Traders will shift their attention to UK employment data next week.
Data released by Destatis on Friday showed that Germany’s Harmonized Index of Consumer Prices (HICP) rose 1.8% year-on-year in September, compared with the previous reading and expectations of 1.8%. Inflation data from Germany continues to support the Euro, as investors digested the ECB’s cautious tone on economic growth.
The minutes of the meeting published on Thursday showed that the ECB remains confident that inflation is on track to reach the 2% target. ECB policymakers consider it appropriate to cut rates by 25 basis points (bps) in September due to disinflation and a fragile recovery.
The ECB noted that any further policy easing would be gradual and data-dependent. The ECB is expected to cut the deposit rate to 3.5% next week. More than 90% of economists polled by Reuters expect a reduction next week, with a similar majority betting on a follow-up move in December.
On the UK front, the Office for National Statistics (ONS) showed on Friday that the UK economy grew by 0.2% in the month of August. The reading was in line with the market consensus of 0.2% growth in the reporting period.
Meanwhile, a further delay in rate cuts by the Bank of England (BoE) could limit the fall of the British Pound (GBP) in the near term. BoE chief economist Huw Pill warned last week against cutting the base rate “too far or too quickly”. Investors expect the UK central bank to cut the rate by a total of 0.5% to 4.5% in two of its last three meetings before the end of the year.
The British Pound FAQs
The British Pound (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded currency unit in the world, with 12% of all transactions and an average of $630 billion per day, according to 2022 data.
Its key currency pairs are GBP/USD, also known as “Cable”, which represents 11% of the forex market, GBP/JPY, or the “Dragon” as it is known to traders (3%), and EUR/GBP (2%). The pound sterling is issued by the Bank of England (BoE).
The most important factor influencing the value of the Pound Sterling is the monetary policy decided by the Bank of England. The Bank of England bases its decisions on achieving its main objective of “price stability”, that is, a stable inflation rate of around 2%. Its main tool to achieve this is the adjustment of interest rates.
When inflation is too high, the Bank of England tries to contain it by raising interest rates, which makes access to credit more expensive for individuals and companies. This tends to be positive for the GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation is too low, it is a sign that economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to make credit cheaper, so that companies borrow more to invest in projects that generate growth.
The published data gauges the health of the economy and may influence the value of the Pound sterling. Indicators such as GDP, manufacturing and services PMIs, and employment can influence the direction of the Pound.
A strong economy is good for the British pound. Not only does it attract more foreign investment, but it may encourage the Bank of England to raise interest rates, which will directly strengthen the Pound. Otherwise, if economic data is weak, the pound is likely to fall.
Another significant data for the pound sterling is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a given period.
If a country produces highly sought-after exports, its currency will benefit exclusively from the additional demand created by foreign buyers wishing to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
