The EUR/GBP pair held steady near 0.8690 during Asian trading on Tuesday, rebounding after two consecutive days of losses. The Euro (EUR) found mild support following a report from Germany’s Finance Ministry showing that combined federal and state tax revenues rose 2.6% year-over-year in September.
However, the ministry cautioned that the rise in tax income is unlikely to be sustained by short-term economic momentum. Germany, the Eurozone’s largest economy, contracted for the second straight year in 2024, with official forecasts projecting a mere 0.2% GDP growth in 2025. According to Reuters, leading indicators show “no noticeable acceleration in economic momentum in the short term.”
Adding pressure to the Euro, S&P Global Ratings downgraded France’s credit rating from AA- to A+, citing elevated fiscal risks and uncertainty over the government’s 2025 budget. The downgrade offset some of the optimism generated by a mild improvement in global market sentiment.
Meanwhile, the Pound Sterling (GBP) remains supported by cautious expectations around the Bank of England’s (BoE) policy direction. Persistent inflation in the United Kingdom continues to shape investor sentiment, with BoE Governor Andrew Bailey recently warning that the central bank is “not out of the woods yet” regarding inflation control.
Traders now await key UK data, including Consumer Price Index (CPI) and Retail Sales figures due Wednesday, for fresh clues on the BoE’s rate outlook. Although labor market data for the three months ending August showed slowing wage growth and a rise in unemployment, markets still see a growing probability that the BoE could opt for another rate cut before the end of 2025.
At present, the EUR/GBP cross remains range-bound, with the Euro’s gains limited by weak Eurozone fundamentals and the Pound’s support from cautious BoE expectations.
