EUR/GBP Pulls Back Below 0.8800 Following UK Labor Data
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The EUR/GBP currency pair pared earlier gains near 0.8785 during the early European session on Tuesday, as the Pound Sterling (GBP) recovered some lost ground following the release of the latest UK labor market data.
Market participants are closely monitoring the European Central Bank (ECB) and Bank of England (BoE) monetary policy decisions due later this week, alongside key Eurozone PMI readings, which could influence near-term price action. This article by LFtrade offers expert commentary and a complete explanation of the subject.
Early Market Reaction: EUR/GBP Holds Positive Ground
During the Tuesday European session, EUR/GBP hovered around 0.8785, maintaining modest upside momentum after dipping from its intraday high near 0.8800. The pair’s movement reflects mixed signals from the UK labor market and expectations around central bank policy.
Traders are digesting the preliminary HCOB Purchasing Managers Index (PMI) reports from Germany, France, and the broader Eurozone, due later on Tuesday, as these readings offer insight into economic growth and manufacturing activity, which can affect Euro demand.
UK Labor Market Data Sparks Sterling Recovery
The UK Office for National Statistics (ONS) reported that the ILO Unemployment Rate increased to 5.1% in the three months to October, slightly higher than the previous 5.0%, but in line with market expectations. Meanwhile, the Claimant Count Change rose to 20.1K in November, compared to a revised decline of 3.9K in October.
The labor market data initially provided a boost to the Pound, as the employment report indicated resilience in the UK workforce. However, rising market speculation over a possible BoE rate cut limited the upside potential for GBP against the Euro (EUR).
Bank of England Rate Expectations
The BoE’s Monetary Policy Committee (MPC) is widely expected to reduce the base interest rate from 4.0% to 3.75% at its upcoming Thursday meeting. This would represent the first rate cut since August and reduce borrowing costs to their lowest level in nearly three years.
Markets are factoring in that a lower interest rate could weigh on GBP demand, potentially capping further EUR/GBP declines. The interest rate differential between the UK and the Eurozone remains a key driver of cross-currency flows, as traders weigh the relative monetary policy stance of the BoE versus the ECB.
Euro Outlook: ECB Likely to Hold Rates Steady
On the Euro side, market consensus indicates that the ECB is likely to maintain interest rates at current levels during its December policy meeting, marking the fourth consecutive hold. Traders are pricing in expectations that the ECB has completed its rate easing cycle, which could provide support to the Euro against the GBP in the near term.
ECB Governing Council member Isabel Schnabel recently noted that she was “rather comfortable” with market expectations for potential rate hikes, while ECB policymaker Joachim Nagel stated that the current rates are in a good place, reinforcing a hold scenario.
Technical Perspective: Key Levels to Watch
From a technical analysis standpoint, EUR/GBP faces immediate resistance near 0.8800, while support is located around 0.8750-0.8760. A sustained break above 0.8800 could open the path toward 0.8825, whereas a slip below 0.8760 may target 0.8730 in the medium term.
The pair’s behavior is likely to be influenced by upcoming macro data releases and central bank policy decisions, making it sensitive to interest rate expectations, labor market indicators, and PMI trends. Traders will also be watching for cross-market correlations, particularly EUR/USD and GBP/USD, which can indirectly impact EUR/GBP momentum.
Upcoming Catalysts: PMI and Policy Decisions
Later on Tuesday, preliminary HCOB PMI readings for Germany, France, and the Eurozone will provide critical insight into manufacturing and services sector activity. Strong PMI figures could reinforce Euro strength, while weaker-than-expected numbers might weigh on EUR/GBP.
Looking ahead, Thursday’s ECB and BoE policy meetings are expected to be the primary market catalysts. Traders will be focusing on rate decisions, forward guidance, and central bank commentary, as any shift in tone could generate significant volatility in the EUR/GBP cross.
Summary
The EUR/GBP cross currently holds near 0.8785, as the Pound Sterling partially recovers from early weakness following the UK labor market report. UK unemployment data, including the ILO Unemployment Rate at 5.1% and the Claimant Count Change of 20.1K, triggered mixed reactions, with BoE rate cut expectations capping gains.
Meanwhile, the Euro benefits from market anticipation that the ECB will maintain interest rates at current levels, supported by comments from key ECB policymakers. Technical levels around 0.8800 resistance and 0.8750 support are likely to guide short-term trading, while PMI readings and upcoming monetary policy decisions remain crucial for the EUR/GBP direction.