EUR/GBP edges higher near 0.8280 as sterling weakens data for October. The UK GDP shrank by 0.1% MoM, missing the 0.1% growth forecast. Industrial production dropped by 0.6% MoM, Manufacturing production also fell 0.6%, falling short of the anticipated 0.2% growth and extending September's 1% decline. In the Eurozone, the euro remains volatile after the European Central Bank's decision to introduce a 25 bps cut.

Softer-than-expected German trade figures and dovish remarks are also pressuring the single currency. The ECB staff predicted headline inflation to average 2.4% in 2024, 2.1% in 2025, 1.9% in 2026, and 2.1% in 2027, though Lagarde noted that "US tariffs are not incorporated into ECB projections." Broader market sentiment surrounding the ECB monetary policy and today's Eurozone industrial production figures will drive the EUR/GBP exchange rate dynamics.

EUR/USD Sinks Following Hotter US PPI

EUR/USD struggles near 1.0460 as the European Central Bank's (ECB) dovish bias undermines the euro. The ECB's third consecutive 25 bps rate cut, weaker-than-expected German trade figures, and Eurozone economic concerns are fuelling euro volatility. Meanwhile, producer inflation rose faster than expected, strengthening the USD. The Producer Price Index (PPI) accelerated to 3% year-on-year, exceeding both forecasts and the previous reading of 2.6%. Core PPI, excluding food and energy, rose to 3.4%, above the 3.2% estimate and prior figure of 3.1%.

Despite this uptick, markets still broadly anticipate the Federal Reserve interest rate cut at Wednesday's policy announcement. Geopolitical risks stemming from the Russia-Ukraine conflict and Middle East tensions, trade war fears, and concerns that Trump's expansionary policies will stimulate inflationary pressures underpin the USD. Amid the lack of impactful US economic data, the EUR/USD exchange rate will be traded on broader market sentiment.

GBP/USD Declines Following UK Monthly GDP

GBP/USD continues to lose ground near 1.2631 as the pound plunges following monthly Gross Domestic Product (GDP) and factory data contraction in October. The UK economy contracted by 0.1% MoM in October, missing the expected 0.1% growth, with industrial and manufacturing production both declining by 0.6%. The Index of Services held steady at 0.1% 3M/3M, while the Goods Trade Balance widened to GBP -18.969 billion, exceeding forecasts of GBP -15.50 billion.

A faster-than-expected acceleration in the United States PPI data for November and speculation that the Fed could turn slightly hawkish on the interest rate outlook supports the dollar. Annual headline and core PPI – excluding volatile food and energy prices – increased by 3% and 3.4%, respectively. In the upcoming week, UK employment data for the three months ending October, the Consumer Price Index (CPI) data for November, BoE's interest rate decision, and the FOMC policy meeting will determine GBP/USD's trajectory.

GBP/JPY Struggles Following Weaker UK Economic Figures

GBP/JPY remains subdued near 193.57 following the weaker-than-expected UK data for October. The UK GDP contracted by 0.1% MoM in October, missing the expected 0.1% growth. Industrial production fell by 0.6% MoM, exceeding the forecasted 0.3% rise, while manufacturing production also dropped by 0.6%, missing the anticipated 0.2% increase. However, anticipation that the BoE will adopt a slower pace of policy easing compared to other central banks could limit the downside of sterling.

In contrast, persistent global risk sentiment, geopolitical tensions in the Russia-Ukraine war and the Middle East, and trade war fears following Trump's policies boosted safe-haven flows, supporting the Japanese Yen (JPY). However, dovish comments from Bank of Japan policymakers hinting that there is no rush to hike interest rates raise concerns regarding next week's monetary policy decision, limiting the yen's upside. In the next week, the market sentiment around the central bank's policy decision will drive the GBP/JPY exchange rate.

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