In the early European trading hours on Thursday, the EUR/GBP currency pair edged slightly lower, trimming recent gains and hovering around 0.8430. Despite the decline, the pair managed to hold firm above the 0.8400 psychological threshold, underpinned by a mixed fundamental backdrop. Market participants are closely watching macroeconomic developments, particularly the latest UK GDP data and the forthcoming Eurozone GDP figures.
An expert analysis of this topic is featured in this article from NordaLueur.
UK GDP Exceeds Expectations in Q1 2025
The Office for National Statistics (ONS) reported that the UK economy grew by 0.7% quarter-on-quarter (QoQ) in the first quarter (Q1) of 2025, significantly higher than the 0.1% growth posted in Q4 2024 and above the market forecast of 0.6%. This robust reading indicates that the British economy started the year on a stronger footing, surpassing analysts’ expectations and offering support to the Pound Sterling (GBP).
On a year-on-year (YoY) basis, UK GDP expanded by 1.3%, a touch below the previous reading of 1.5%, but still ahead of the consensus estimate of 1.2%. Furthermore, the monthly GDP figure for March came in at 0.2%, following a solid 0.5% growth in February, and again beat expectations of 0.0%.
The steady performance across monthly and quarterly readings suggests a broad-based recovery and resilience in the UK economy, likely driven by improved consumer spending, easing energy prices, and moderating inflationary pressures.
The GBP responded positively in the initial reaction, strengthening modestly across the board. However, its gains were somewhat limited against the Euro (EUR) due to looming uncertainties and market anticipation for the Eurozone’s economic outlook.
EUR/GBP Pulls Back Slightly But Maintains Bullish Bias
Despite the stronger UK data, EUR/GBP retained a bullish undertone, staying well above the 0.8400 level. The recent upswing in the pair has seen it test highs near 0.8430, reflecting broader weakness in the Euro but also market hedging ahead of upcoming economic data from the Eurozone.
The mild pullback in EUR/GBP could be attributed to profit-taking ahead of the Eurozone’s Q1 GDP release, scheduled for later in the day. Traders are exercising caution, as the upcoming data will provide clues on the Eurozone’s economic health and influence European Central Bank (ECB) policy expectations.
ECB Rate Cut Speculations Continue to Pressure the Euro
Market focus is increasingly shifting to the ECB’s policy trajectory, particularly amid widespread expectations that the central bank will proceed with interest rate cuts starting as early as June 2025. According to interest rate futures, financial markets are pricing in a 90% probability of a 25-basis point rate cut in June. Additional rate reductions are also being priced in for the second half of the year, depending on inflation trends and growth dynamics.
Driving this dovish outlook are several factors:
- The muted inflation outlook in the Eurozone.
- Weaker-than-expected industrial output and consumer demand.
- Limited inflationary spillovers from recent U.S. trade tariffs, easing fears of imported inflation.
This policy divergence between the ECB and the Bank of England (BoE) is critical to the EUR/GBP dynamic. While the BoE remains cautious on premature easing, the ECB appears more comfortable with preemptive rate action to support growth. This divergence creates downward pressure on the Euro, supporting relative GBP strength, especially if the UK economy continues to outperform Eurozone peers.
Technical Outlook: Key Levels to Watch
From a technical perspective, EUR/GBP remains supported as long as it trades above 0.8400, a key short-term support level. A sustained move above 0.8430 could open the path toward the next resistance at 0.8465, followed by the 0.8500 psychological mark. Conversely, failure to hold above 0.8400 may result in a retest of the 0.8370 area, a level aligned with the 50-period moving average on the 4-hour chart.
The Relative Strength Index (RSI) is hovering near neutral territory, suggesting room for further upside if Eurozone data surprises to the upside. However, any downside surprise in Eurozone GDP could trigger renewed selling pressure on the EUR, accelerating declines in the pair.
Conclusion
The EUR/GBP pair remains resilient above 0.8400 despite solid UK GDP data that initially boosted the Pound Sterling. The key determinant for the pair’s near-term trajectory will be the upcoming Eurozone Q1 GDP print, which could confirm or challenge the ECB’s dovish stance.
Should the Eurozone post better-than-expected growth, the Euro may find near-term support, pushing EUR/GBP toward the 0.8450–0.8500 range. Conversely, a weak print could reinforce expectations of multiple ECB rate cuts, weighing further on the EUR and giving the GBP a stronger edge.
In summary, EUR/GBP is at a technical and fundamental crossroads, driven by contrasting economic performances and central bank outlooks. Traders will be keenly focused on incoming data and monetary policy clues to gauge the pair’s next decisive move.
