The EUR/GBP pair retreats from recent highs, trading around 0.8785 in the early European session on Tuesday, as the Pound Sterling recovers part of its earlier losses following the release of UK labor market data. Market participants are now turning their attention to the preliminary HCOB Purchasing Managers Index (PMI) readings from the Eurozone, France and Germany due later in the day, ahead of the key European Central Bank (ECB) and Bank of England (BoE) rate decisions scheduled for Thursday.
Figures published by the UK Office for National Statistics showed that the ILO unemployment rate edged up to 5.1% in the three months to October, compared with 5.0% previously. The data met market expectations, offering some reassurance about underlying labor market conditions.
At the same time, the Claimant Count Change rose by 20.1K in November, a sharp turnaround from the previous decline of 3.9K (revised from a 29K increase). The stronger-than-expected employment details triggered modest buying interest in the Pound in the immediate aftermath of the release. That said, expectations that the BoE could soon begin easing policy may limit the scope for sustained GBP gains.
The BoE’s Monetary Policy Committee is widely expected to cut the base rate by 25 basis points, from 4.0% to 3.75%, at its meeting on Thursday. If confirmed, this would represent the first rate cut since August and push borrowing costs to their lowest level in nearly three years.
On the Euro side, markets largely anticipate that the ECB will leave interest rates unchanged at its December meeting, extending its pause in the easing cycle. Growing confidence that the ECB has concluded its rate-cutting phase could provide near-term support for the Euro against the Pound.
Comments from ECB officials have reinforced this view. Governing Council member Isabel Schnabel said she was “rather comfortable” with markets pricing in potential rate hikes, boosting expectations that the next policy move could be higher rather than lower. Meanwhile, ECB policymaker Joachim Nagel noted that current interest rates are in a “good place,” strengthening the consensus for a steady policy stance.
