The EUR/GBP pair is gaining momentum to approach the 0.8675 level during early European trading hours on Monday. The Euro (EUR) rose against the British Pound (GBP) as the European Central Bank (ECB) signaled that it is on a flat rate path for now, with no near-term discussion of further interest rate changes if the current economic outlook holds.
The European Central Bank has kept interest rates unchanged since ending its rate-cutting cycle in June 2025 and hinted last month that it was in no rush to change policy again. The Board will continue to take a “data-driven, meeting-by-meeting approach” without prior commitment to a specific future price path. Policymakers also stated that decisions will be based on an assessment of inflation expectations.
Stronger-than-expected monthly GDP data released last week tempered bets on a rate cut by the Bank of England (BoE) and made a February rate cut less likely. This, in turn, could provide some support to the British pound and act as a headwind for the pair. The British economy grew by 0.3% month-on-month in November, after a 0.1% contraction in October, well above expectations for a 0.1% expansion.
Traders will benefit from key economic data in the UK later this week, including employment and consumer price index (CPI) inflation data. These reports could provide some hints about the Bank of England’s monetary policy outlook. If the readings show stronger than expected results, this could lead to a lift for the pound in the near term.
Frequently asked questions about the pound sterling
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 popular foreign exchange (FX) trading unit in the world, accounting for 12% of all transactions, averaging $630 billion per day, according to data for 2022. The main trading pairs are GBP/USD, also known as “Cable”, which accounts for 11% of FX, GBP/JPY, or “Dragon” as traders know it (3%), and EUR/GBP (2%). The pound sterling is issued by the Bank of England (BoE).
The single most important factor affecting the value of the pound sterling is the monetary policy decided by the Bank of England. The Bank of England bases its decisions on whether it has achieved its primary objective of “price stability” – a stable inflation rate of around 2%. The primary tool for achieving this is adjusting interest rates. When inflation is too high, the Bank of England will try to rein it in by raising interest rates, making it more expensive for individuals and businesses to obtain credit. This is generally positive for the pound, as higher interest rates make the UK a more attractive place for global investors to put their money. When inflation falls to a very low level, it is a sign that economic growth is slowing. In this scenario, the Bank of England would consider lowering interest rates to reduce the cost of credit so that companies borrow more to invest in growth-generating projects.
Data releases measure the health of the economy and can affect the value of the British pound. Indicators such as GDP, manufacturing PMIs, services and employment can all influence the direction of the pound. A strong economy is good for the 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 sterling. Otherwise, if economic data is weak, the British pound is likely to fall.
Another important data release for the British Pound 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 certain period. If a country produces highly sought-after exports, its currency will take full advantage of the additional demand generated by foreign buyers seeking to purchase these goods. Therefore, a positive net trade balance strengthens the currency and vice versa for a negative balance.
