The EUR/GBP currency pair is currently under pressure, trading around 0.8700, as the British Pound (GBP) outperforms the Euro (EUR) following resilient UK labor market data and a sharp deterioration in Eurozone economic sentiment for April [1]. The Eurozone’s ZEW Economic Sentiment Index fell significantly to -20.4 from -8.5, while Germany’s ZEW Index dropped to -17.2 from -0.5, both missing expectations and reflecting concerns over long-term energy supply shortages and the impact of Middle East tensions on the Eurozone outlook, according to ZEW President Professor Achim Wambach [1].
UK labor market data released by the Office for National Statistics showed a rise in the Claimant Count Change by 26.8K in March, above expectations, but other indicators such as Employment Change (25K in the three months to February) and a decrease in the ILO Unemployment Rate to 4.9% from 5.2% pointed to underlying resilience [1]. This mixed data suggests the Bank of England (BoE) can remain patient on policy easing, with a Reuters poll indicating all 62 surveyed economists expect the BoE to keep the Bank Rate at 3.75% at its April meeting, and 53% expect rates to remain unchanged for the rest of the year [1].
Rabobank’s Senior FX Strategist Jane Foley highlights that UK political uncertainty, particularly around Labour leadership and the upcoming May elections, could distract GBP markets in the coming weeks [2]. Foley notes that GBP’s earlier outperformance was linked to a sharp repricing of BoE expectations, which has since been partly unwound [2]. She also points to inflation risks tied to Middle East energy disruptions, suggesting these factors could support EUR/GBP and expects the pair to gradually move higher over a six-month horizon, potentially reaching the 0.88 area [2].
Market volatility in UK rates has raised concerns about the anchoring of UK inflation expectations compared to other G10 markets [2]. Rabobank recommends buying dips towards the 0.86 level, with technical support seen at the 200-day and 100-day simple moving averages near 0.87 [2].
While the Euro was the strongest against the Australian Dollar among major currencies today, it showed weakness against the USD and GBP [1].
CONCLUSION
EUR/GBP is currently range-bound but under pressure due to weak Eurozone sentiment and resilient UK labor data. However, Rabobank sees potential for EUR/GBP upside in the coming months, citing UK political risks and inflation concerns. Market participants remain cautious, with no immediate policy shifts expected from the ECB or BoE.