The EUR/GBP currency pair has shown an upside bias, supported by a combination of UK political risks and stronger Eurozone inflation data. Brown Brothers Harriman (BBH) analyst Elias Haddad notes that UK gilts and the Pound are underperforming as political pressure mounts on Prime Minister Keir Starmer, who faces accusations of misleading parliament regarding Peter Mandelson's security checks before his ambassador appointment. BBH expects Labour's weak standing and fiscal credibility challenges to weigh on UK assets, with UK nominal GDP growth lagging behind 10-year gilt yields, making debt growth difficult to contain. As a result, BBH anticipates EUR/GBP will grind higher in line with interest rate differentials [1].
On Friday, EUR/GBP traded around 0.8715, up 0.06% on the day, as the Euro found support from firmer Eurozone inflation. Revised data showed the Eurozone Harmonized Index of Consumer Prices (HICP) rose by 1.3% MoM in March, up from 0.6% in February and exceeding the preliminary estimate of 1.2%. Yearly inflation was revised higher to 2.6%, up from 1.9%, marking its highest level since July 2024. Core inflation eased marginally to 2.3% YoY from 2.4%. This inflation backdrop could encourage the European Central Bank (ECB) to adopt a more hawkish tone at its upcoming meeting, though ECB President Christine Lagarde emphasized the need for agility and no bias toward tightening. Despite this, markets are pricing in a 25-basis-point rate hike by June, with a second move expected later in the year [2].
Meanwhile, the Pound remains pressured despite stronger-than-expected UK GDP growth, with the Office for National Statistics reporting a 0.5% MoM expansion in February, beating the consensus forecast of 0.1%. Analysts caution that this data may reflect pre-escalation conditions before recent geopolitical tensions linked to the Iran conflict. Bank of England (BoE) Governor Andrew Bailey stated that policymakers are not rushing to judgments on rate increases due to global uncertainties, particularly the energy shock from the Middle East war. BoE policymaker Megan Greene indicated that current market pricing of two or fewer rate increases this year is broadly appropriate. The International Monetary Fund (IMF) recently downgraded the UK's growth outlook for 2026 to 0.8%, down from a previous forecast [2].
GBP/USD trades flat at around 1.3530, with technical analysis showing the pair holding above key support levels, including the 20-day EMA at 1.3419 and the 50% Fibonacci retracement at 1.3513. The Relative Strength Index (RSI) at 59.6 suggests buyers retain control, though the advance has paused below higher retracement hurdles. Investors are awaiting upcoming UK labor market and CPI data for further cues on the BoE's policy outlook [3].
CONCLUSION
EUR/GBP is trending higher as UK political instability and fiscal concerns weigh on the Pound, while strong Eurozone inflation supports the Euro. Market participants are cautious, awaiting further developments from the ECB and BoE, as well as upcoming UK economic data. The medium-term outlook favors the Euro, with UK assets facing ongoing challenges.