EUR/GBP Rises on Pound Weakness 

EUR/GBP has reached new highs for 2025. The British Pound has shown increasing weakness as domestic challenges in the UK have put pressure on the economy. These factors have contributed to downward pressure on the British Pound, making the Euro relatively more attractive. 

U.K. Economic Challenges 

The UK’s economic challenges are caused by a substantial external deficit, indicating that the nation imports significantly more than it exports. This imbalance has put pressure on the Pound, especially as foreign capital inflows are crucial to funding the deficit. Rising borrowing costs, influenced by higher interest rates to curb inflation, further complicate the UK’s fiscal outlook. (Source: Financial Times) 

The UK is struggling with slower growth, persistent inflation and a deteriorating labour market, lagging behind the United States. 

After yields on the UK 10-year treasury notes rose to their highest level since 2008, the British Pound fell sharply. The Pound has sharply declined because of the high expenses of UK debt, which have raised major concerns about the country’s financial situation.  

Eurozone Economic Outlook 

On the Eurozone side, relative stability and a less reliance on external financing have supported the Euro. Although the Eurozone faces its own challenges, including moderate growth and inflation concerns, its economic fundamentals appear better in comparison to the UK’s current vulnerabilities.  

The Euro is still facing uncertainties as traders continue to anticipate aggressive ECB rate cuts in 2025 despite rising inflation in the Eurozone and mixed economic data. German industrial output rose to 1.5%, exceeding forecasts with also retail sales showing good signs. Eurozone economic optimism fell to its lowest level in more than a year in December, as an increase in services sentiment was repelled by lower morale in manufacturing, construction, and among consumers. (Source: CNBC) 

Central Banks Next Moves 

The Bank of England (BoE) and the ECB are easing monetary policies in response to improving economic conditions. BoE Deputy Governor Sarah Breeden supports a gradual reduction in interest rates, citing diminishing economic shocks. Meanwhile, the ECB has cut its key interest rate from 4% to 3% and plans further reductions until June 2025. (Source: Reuters) 

Technical Analysis 

Source: TradingView 

EUR/GBP broke out of its range at 0.82950 and breached previous technical levels to reach 0.84134. The 200 EMA is still above the price which may continue to add pressure. The RSI (14-day) shows a bearish divergence, indicating the potential for a pullback after rising through previous levels. If the price maintains its bullish momentum, traders might monitor the 0.84400 level as a new potential resistance. If price fails to hold its gains, 0.83100 level may be monitored as support. 

The information provided is not intended to serve as investment advice or a sufficient basis for making investment decisions. It is meant solely for informational purposes.

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