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Euro Rises Against Pound Amid UK Growth Concerns, Soft Jobs Market
Summary:
The Euro advanced against the Pound on Monday as soft UK GDP data and dovish rhetoric from Bank of England Governor Andrew Bailey weighed on Sterling.
Trading
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The Euro (EUR) edged higher against the British Pound (GBP) on Monday, with the EUR/GBP currency pair climbing to fresh two-week highs around 0.8710 as investors reacted to a deteriorating economic outlook for the UK and growing speculation that the Bank of England (BoE) is preparing to ease policy more aggressively in the months ahead. The move reflects a broad reassessment of interest rate expectations, compounded by disappointing macro data and mounting signs of labor market softness in the UK economy.
The upward trajectory in EUR/GBP marks a continuation of the pair’s recent bullish bias, driven by renewed Sterling weakness rather than Euro strength per se. At the core of this week’s bearish sentiment on the Pound is the latest batch of UK economic indicators, which signal that Britain may be slipping into a period of stagnation — if not outright contraction — just as fiscal pressures and labor market frictions deepen.
According to figures published by the Office for National Statistics (ONS) on Friday, the UK economy shrank by 0.1% in May — following a sharper-than-expected 0.3% contraction in April. The downturn was broad-based, with declines in manufacturing output, industrial production, and construction activity all weighing heavily on headline GDP. Only the services sector posted a modest uptick, and even that was tepid.
The back-to-back monthly contractions have sparked fresh concerns that the UK may be entering a technical recession, defined as two consecutive quarters of negative growth. While the BoE has remained cautious in its economic assessments, the data is now forcing policymakers and markets alike to confront the risk of a deeper slowdown — one that might warrant faster or larger interest rate cuts.
Compounding Sterling’s woes was a candid interview from Bank of England Governor Andrew Bailey, who on Monday reiterated the central bank's intention to shift toward an easing cycle. Speaking with The Times, Bailey acknowledged the emergence of “slack” in the economy, partly due to increased employer national insurance contributions, which are starting to weigh on business confidence and hiring.
“I really do believe the path is downward,” Bailey said, referring to interest rates. He emphasized that any rate cuts would be delivered in a “gradual and careful” fashion — but also added that if economic slack materializes faster than expected, the BoE would not hesitate to act more decisively.
His remarks come at a pivotal moment for UK monetary policy. Recent surveys suggest the labor market — long considered a bulwark of resilience — is now beginning to cool rapidly. A KPMG-REC report released last week showed that permanent job placements fell at the sharpest rate in over two years, while staff availability rose at its fastest pace since 2020. Official data also revealed that unemployment ticked up to 4.6% in the three months to April, marking the highest level since the pandemic era.
With growth slipping and employment faltering, markets have become increasingly confident that the BoE will initiate its rate-cutting cycle as soon as the August meeting. As of Monday, swaps pricing implies a 90% probability of a 25 basis point cut next month, with markets anticipating a total of 75 basis points in easing over the next 12 months.
On the European side of the equation, the single currency has remained remarkably steady, even as the European Union faces simmering trade tensions with the United States. While no immediate trade measures have been enacted, the threat of retaliatory tariffs from the US remains on the radar, particularly as Washington reevaluates its industrial policy vis-à-vis Europe.
Despite this, the European Central Bank (ECB) has maintained a measured stance. ECB officials, including Governor François Villeroy de Galhau and Chief Economist Philip Lane, have repeatedly signaled that while further rate cuts are possible, they will proceed with caution given persistent inflation risks. Eurozone inflation, although moderating, remains sticky enough to warrant vigilance, and policymakers are wary of moving too quickly.
This divergence in central bank outlooks — with the BoE preparing to accelerate rate cuts while the ECB takes a more patient approach — continues to provide structural support for the Euro, especially against currencies like the Pound that are facing more acute domestic pressures.
Technical Analysis 
From a technical standpoint, EUR/GBP remains in a well-defined uptrend, having broken above a key consolidation zone. The pair is currently testing immediate resistance near 0.8700 and appears set to challenge the psychologically significant 0.8715 level — a horizontal structure that has acted as both support and resistance in the past.
The broader technical landscape shows continued bullish momentum, with dips toward 0.8620 — the previous consolidation base — likely to be viewed as buying opportunities. A successful rebound from this support level would reinforce the bullish bias and could drive the pair toward the next upside target at 0.8740, where longer-term resistance comes into play.
Should the pair breach that level, a potential move toward 0.8780–0.8800 could materialize, especially if incoming UK data continues to disappoint or if dovish BoE rhetoric intensifies. Conversely, a failure to hold above 0.8620 would weaken the short-term bullish structure and open the door for a corrective pullback toward the 50-day moving average around 0.8550.
TRADE RECOMMENDATION
BUY EURGBP
ENTRY PRICE: 0.8665
STOP LOSS: 0.8600
TAKE PROFIT: 0.8800
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Warren Takunda, a seasoned finance leader specializing in the Middle East, is a trusted senior analyst with a proven track record. As head of the finance team, he excels in financial planning, analysis, and reporting. Warren's expertise in financial modeling and investment analysis delivers valuable insights to clients.
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