The Euro was among the weakest G8 currencies on Wednesday and fell against Sterling to near 0.8650 after failing around 0.8700 on Tuesday. The move followed softer Eurozone GDP and industrial production data, while the Pound was steadier.
Eurozone Q1 GDP, in its second estimate, confirmed 0.1% growth, down from 0.2% in the prior quarter. Year-on-year growth was 0.8%, after 1.3% in Q4.
Eurozone Data Weighs On Euro
Eurozone industrial production rose 0.2% in March, below expectations of 0.3%, and February was revised down to 0.2% from 0.4%. Annual output fell -2.1% in March, worse than -0.8% in February.
In the UK, attention remained on political tensions after local election losses and the resignations of four junior ministers on Tuesday. Prime Minister Keir Starmer said he would stay in office despite calls to step down.
The UK data calendar was light on Wednesday, with Q1 GDP due on Thursday. Growth is expected to pick up, though March data is expected to be weak amid the war in Iran.
We remember seeing the Euro struggle against the Pound around this time last year, in mid-2025, when it failed to hold the 0.8700 level. The pressure came from weak Eurozone growth figures, with Q1 2025 GDP confirmed at just 0.1% while industrial output was contracting.
Shifting Growth Momentum In 2026
Fast forward to today, the economic picture is shifting. The latest Eurostat flash estimate shows the Eurozone economy grew by 0.3% in the first quarter of 2026, beating expectations and marking the strongest growth in over a year. Meanwhile, recent data from the UK’s Office for National Statistics showed its Q1 2026 GDP growth slowed to 0.2%, as stubborn services inflation continues to weigh on the outlook.
This apparent economic divergence, which is the reverse of what we saw in 2025, suggests the Pound’s strength against the Euro may be exhausted. The narrative is flipping from a stagnant Eurozone and resilient UK to a recovering Eurozone and a slowing UK.
Given this potential reversal, we should consider positioning for a move higher in the EUR/GBP exchange rate. Buying call options with strike prices just above the current spot rate, perhaps targeting the 0.8750 level with expirations in late July or August, would offer upside exposure. Implied volatility in the pair has been relatively subdued, making option premiums an attractive way to express this view.
The central bank policy path will be critical in the coming weeks. While the Bank of England is facing pressure to ease policy amid slowing growth, the European Central Bank may hold rates steady for longer given the recent uptick in economic activity and core inflation remaining above target at 2.7%. This policy divergence could provide a sustained tailwind for the Euro against the Pound.
