EUR/GBP is trading in positive territory around 0.8685 during the early European session on Monday. The euro rose against the pound as the European Central Bank appears to be nearing the end of its interest rate cutting cycle. Traders will benefit from UK jobs data later on Tuesday.
Eurozone inflation fell to the European Central Bank’s target level, supporting policymakers’ view that interest rates can remain at current levels unless the economic outlook changes significantly. European Central Bank Vice President Louis de Guindos said on Thursday that interest rates are at an appropriate level, although he warned of “enormous uncertainty” due to geopolitical risks.
Financial markets currently see limited scope for immediate action, with interest rates likely to remain unchanged at the next meeting. Some analysts expect a rate cut later in 2026, although a rate hike is considered unlikely given declining inflation.
Labor market conditions in the UK remained weak in 2025 as companies slowed hiring to offset the impact of an increase in employer contributions to social security schemes. Additionally, the UK unemployment rate rose to 5.1% in October, the highest level since March 2021.
Traders await Tuesday’s UK jobs data, as it may impact market expectations on the Bank of England’s (BoE) monetary policy outlook. Any signs of weakness in the UK labor market could undermine the pound. On the other hand, a stronger than expected result may push the pound higher against the euro 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.
