EUR/GBP Holds Above 0.8650 as ECB Rate Pause Expectations Lend Support

The EUR/GBP pair remains steady above the 0.8650 mark in Friday’s early Asian session, following a sharp decline of over 0.5% in the previous day. The Euro continues to face pressure after the release of disappointing economic data from Germany, the Eurozone’s largest economy.

German Data Disappoints, Euro Weakens

Germany’s industrial production declined by 1.9% month-over-month in June, missing the market forecast of a 0.5% contraction and worsening from May’s modest 0.1% dip. On a yearly basis, output fell by 3.6%, further highlighting the weak performance in the manufacturing sector. Additionally, Germany’s trade surplus dropped to €14.9 billion in June, down from €18.6 billion in May and below expectations of €17.3 billion.

These figures raised concerns about the health of the Eurozone economy, placing downside pressure on the Euro. However, the pair’s losses were limited as markets increasingly believe that the European Central Bank (ECB) may pause its easing cycle in September. According to market pricing, there is an 87% probability that the ECB will keep interest rates unchanged at its next policy meeting. Expectations for any additional rate cuts before March 2026 have also decreased to around 60%.

Pound Supported by BoE Rate Cut and Cautious Tone

Meanwhile, the British Pound held firm after the Bank of England (BoE) delivered a widely expected 25 basis point rate cut, bringing the policy rate down to 4%. The rate decision passed by a narrow margin, highlighting internal divisions within the Monetary Policy Committee.

BoE Governor Andrew Bailey emphasized that future policy moves would remain “gradual and cautious,” reinforcing the central bank’s dovish stance while signaling that more cuts may follow if economic conditions weaken. This stance gave the Pound additional support, contributing to EUR/GBP’s limited upside.

Outlook

While weak German data weighs on the Euro, the ECB’s likely pause in rate cuts may offer some underlying support. On the other hand, the Pound remains buoyed by cautious BoE easing and continued demand from investors. Traders will now look ahead to upcoming Eurozone and UK data releases for further direction.tay updated with Daily Forex Pakistan.