The Pound Sterling is on the back foot heading into the weekend, with the GBP to Euro exchange rate (GBP/EUR) sliding notably during Friday’s session.
The pair dipped to 1.1460, breaching the key 1.15 support level and putting the 1.14 mark firmly in focus for the days ahead.
Currency analysts say the recent slide reflects mounting pressure from deteriorating UK economic fundamentals, as investor confidence wavers.
Seven Losses in Nine Weeks as BoE Takes Dovish Turn
“The underperformance of Sterling is weighing heavily on GBP/EUR,” commented George Vessey, Lead FX & Macro Strategist at Convera.
“The Pound has now fallen in seven of the past nine weeks, shedding around 3.5%, as markets adjust expectations towards a more dovish Bank of England (BoE) compared to the European Central Bank (ECB).”
This marks the fourth consecutive weekly decline for Sterling, bringing it close to lows last seen during the steep selloff triggered by Donald Trump’s controversial ‘liberation day’ tariffs in April.
Unlike the sudden reaction seen then, the current downturn is rooted in economic fundamentals, making a swift recovery in the Pound less likely.
Policy Divergence Drives Exchange Rate Pressure
The Euro, meanwhile, is finding support following a steady ECB policy update on Thursday, in which the central bank signalled that further interest rate cuts may be limited.
In contrast, the Bank of England is expected to take a softer approach in the months ahead, as recent UK economic data continues to disappoint.
“The policy divergence between the BoE and ECB could keep downward pressure on GBP/EUR over the summer,” Vessey added.
Analysts at MUFG Bank echoed this sentiment, noting that the ECB’s update helped lift bond yields across the Eurozone, while UK yields moved in the opposite direction. This divergence further underlines the market’s shift in favour of the Euro.
PMI Data Highlights Economic Gap
The most recent Purchasing Managers’ Index (PMI) figures underscore the divide: the UK’s composite PMI fell back to 51 in July, while the Eurozone’s PMI ticked up to the same figure.
While both readings match, analysts note that momentum is improving in the Eurozone, whereas UK growth is slowing.
This divergence in sentiment and data is likely to keep the GBP under pressure against the EUR in the near term, as traders and investors reassess their outlooks for UK monetary policy and economic growth.
