The Euro stayed near 0.8660 against the Pound on Thursday. UK data for March came in stronger than expected, but political uncertainty limited further falls.
UK GDP grew 0.6% in Q1, matching forecasts, up from 0.2% in the prior quarter. Monthly GDP rose 0.3% in March, against a forecast 0.2% fall.
Uk Growth Beats Expectations
Manufacturing Production rose 1.2% in March after a revised 0.2% drop in February. This beat expectations for another 0.2% decline.
The Index of Services increased 0.8% in March from 0.5% in February. It also topped the 0.6% consensus estimate.
In the Eurozone, Spain’s Harmonised Index of Consumer Prices rose 3.5% year on year in April, up from 3.4% in March. The data pointed to inflation linked to an energy shock.
Later, European Central Bank President Christine Lagarde is due to speak in Aachen, Germany. Markets are pricing the next rate rise for June or July.
Market Focus Shifts To Central Banks
We are seeing the EUR/GBP pair pivot around the 0.8640 mark, showing little direction despite recent data releases. This situation is reminiscent of past periods where strong UK economic figures were counteracted by broader market uncertainty. Traders should be cautious as the pound is struggling to capitalize on favourable domestic news.
Recent UK inflation data from late April showed Consumer Price Index (CPI) holding stubbornly at 2.9%, well above the Bank of England’s target. This persistent inflation suggests the BoE may delay any potential rate cuts, providing underlying support for the pound. However, this is being offset by concerns over slowing global trade, which historically impacts the UK’s open economy.
Meanwhile, the latest Eurozone manufacturing PMI figures slipped to 49.5, indicating a slight contraction and fueling speculation that the European Central Bank will need to consider easing policy sooner than the BoE. We saw a similar divergence back in 2025 when the ECB paused its tightening cycle months before the BoE did. This policy gap ultimately drove the EUR/GBP pair lower throughout the second half of that year.
Given this divergence, options strategies that benefit from a drop in the pair, or range-bound movement with a downward bias, seem prudent. We believe buying GBP call options or EUR put options could offer a defined-risk way to position for potential sterling strength. A bearish put spread on the EUR/GBP could also be effective, capitalizing on a slow grind lower while limiting upfront costs.
We remember how the sharp UK services sector rebound following the Iran conflict resolution in 2025 initially boosted the pound, only to be faded as the market refocused on the BoE’s long-term policy path. The current strength in UK wage growth, last reported at 4.1%, is creating a similar dynamic today. Therefore, any rallies in the EUR/GBP pair could present opportunities to position for a stronger pound in the medium term.
