The Euro (EUR) stabilized against the British Pound (GBP) on Tuesday, trading around 0.8624 after reaching an intraday low of 0.8615, the lowest level since March 20. This follows a sharp decline in EUR/GBP the previous day, which was triggered by the resignation of UK Prime Minister Keir Starmer, an event that strengthened the Pound across the board [1].
The subdued movement in the currency pair comes as traders react to weaker-than-expected UK economic data. Preliminary S&P Global Purchasing Managers Index (PMI) readings for the UK missed expectations: the Composite PMI fell to 49.4 from 49.7, the Services PMI dropped to 48.7 from 49.3, and the Manufacturing PMI eased to 53.1 from 53.9 [1]. In contrast, the Eurozone's preliminary HCOB PMI data exceeded expectations, with the Composite PMI rising to 49.5 from 48.5, the Services PMI improving to 48.9 from 47.7, and the Manufacturing PMI slightly declining to 51.3 from 51.6 [1].
Central bank commentary also influenced market sentiment. Bank of England (BoE) policymaker Alan Taylor described the UK economy as weak and monetary policy as already restrictive, noting that the Bank Rate is "75 bps above my estimate of neutral." He warned that if economic slack increases, the BoE "may end up having to cut quickly" and could see the Bank Rate "below neutral for a while" [1]. On the Eurozone side, ECB Governing Council member Boris Vujčić highlighted the region's resilience to supply shocks, while ECB Chief Economist Philip Lane cautioned that higher energy prices are expected to keep inflation "well above target into the first half of 2027" [1].
Looking ahead, political developments in the UK remain in focus, with Andy Burnham emerging as the leading candidate to replace Starmer. Commerzbank analyst Michael Pfister suggested that if Burnham maintains the status quo, the Pound could react positively, but warned that questioning fiscal rules could lead to significant depreciation of the currency. Pfister stated that Commerzbank remains sceptical about Sterling in the near term and expects EUR/GBP to target higher levels if the BoE holds rates steady while the ECB raises rates in September [1].
On the day, the British Pound was the strongest against the Australian Dollar, according to a table of percentage changes against major currencies [1].
CONCLUSION
The Euro's stabilization against the Pound reflects contrasting economic data and central bank outlooks, with weak UK PMIs and resilient Eurozone activity shaping sentiment. Political uncertainty in the UK and diverging monetary policy expectations are likely to keep EUR/GBP volatile in the coming weeks. Analysts remain cautious on Sterling, especially if fiscal policy risks increase.