EUR/GBP is edging higher after two consecutive days of losses, trading around 0.8690 during Tuesday’s Asian session. The currency pair has found support as the Euro (EUR) benefits from Germany’s latest tax revenue report.
The country’s finance ministry announced that federal and state government tax receipts increased by 2.6% year-over-year in September, suggesting a modest boost to the Euro. However, the ministry also cautioned that the short-term economic outlook remains subdued, with no immediate boost to tax revenues expected from economic growth.
Germany, the Eurozone’s largest economy, contracted for the second consecutive year in 2024, with the government forecasting only 0.2% growth for 2025. The finance ministry noted that leading indicators show “no signs of a noticeable acceleration in economic momentum in the short term,” according to Reuters.
Despite this positive revenue data, the Euro is struggling to maintain its footing, particularly as traders weighed S&P Global Ratings’ downgrade of France. The credit rating agency downgraded France’s sovereign rating to A+ from AA-, citing “elevated” budget uncertainty despite the French government’s submission of its 2025 draft budget.
Pound Sterling outlook: BoE’s cautious tone may support GBP
The EUR/GBP cross may face downward pressure as the Pound Sterling (GBP) could gain traction from the cautious tone surrounding the Bank of England’s (BoE) policy outlook. Persistent inflation in the UK continues to weigh on market expectations, and the BoE’s cautious stance may help underpin the Pound.
Traders are likely to focus on key data points due for release on Wednesday, including the UK Consumer Price Index (CPI) and Retail Sales figures.
These reports will provide further clues about the BoE’s likely actions, with the central bank’s interest rate cuts still on the table for the rest of the year. BoE Governor Andrew Bailey stressed last month that the UK central bank was “not out of the woods yet” when it comes to tackling inflation.
Additionally, UK labor market data for the three months ending in August showed a slowdown in wage growth and a rise in the jobless rate, heightening expectations that the BoE may lower borrowing costs again before the year ends.
