The EUR/GBP currency pair posted modest gains, trading near 0.8710 during early European hours, despite the release of weaker-than-expected German Industrial Production data for February [1]. According to Destatis, German industrial output declined by 0.3% month-on-month, missing expectations of a 0.9% rise and following a revised 0% in January (previously -0.5%) [1][2]. On an annual basis, industrial production was flat at 0% in February, after a revised 0.9% decrease in January [1][2].
The Euro remained firm against the British Pound, supported by the European Central Bank's (ECB) hawkish tone. Policymakers have signaled a potential shift toward further tightening if price pressures persist, which could bolster the Euro [1]. Market participants have now fully priced in two ECB rate hikes and see more than a 50% chance of a third move by December, according to Reuters [1]. Attention is also turning to the upcoming German Harmonized Index of Consumer Prices (HICP) inflation data, scheduled for release on Friday [1].
In contrast, expectations for aggressive rate hikes from the Bank of England (BoE) have cooled, partly due to news of a tentative ceasefire. BoE Governor Andrew Bailey cautioned that markets may be 'ahead of themselves' in pricing in multiple rate hikes, emphasizing that the current stance should be to hold rates steady [1].
Regarding the broader market reaction, the EUR/USD pair remained weak near 1.1660, down 0.02% on the day, following the German industrial production release [2].
CONCLUSION
Despite disappointing German industrial production figures, the Euro showed resilience against the Pound, buoyed by expectations of further ECB tightening. Market focus now shifts to upcoming inflation data and central bank policy signals, with the BoE adopting a more cautious stance. Overall, the event had a moderate impact on currency markets, with EUR/GBP gaining modestly and EUR/USD showing little change.