Markets expect UK GDP to grow by 0.1% month-over-month in August, slightly higher than July's 0%. Industrial production is expected to rebound by 0.2% month-over-month, bringing the annual growth rate to 0.6%, slightly better than the previous reading of 0.1%. Despite the slight improvement in economic data, UK labor market data showed signs of slowing, fueling market bets on a Bank of England interest rate cut this year.

According to market surveys, the money market has factored in the possibility of the BoE cutting interest rates by 46 basis points in the remaining two monetary policy meetings, which puts downward pressure on the pound.

James Caldwell, an economic strategist in London, noted: “Market expectations of BoE easing may limit the pound’s rebound in the short term, and EUR/GBP may remain in a volatile and strong pattern.”

The European Central Bank maintains a prudent policy. Primoz Dolenc, Acting Governor of the National Bank of Slovenia, stated that interest rates should remain unchanged unless new shocks emerge. Dolenc noted that inflation risks are balanced around the baseline scenario, and that current policies neither stimulate inflation nor suppress economic growth.

In addition, French Prime Minister Le Cornu postponed the risk of a no-confidence vote by postponing pension reform, which eased the political uncertainty in the eurozone in the short term and provided additional support for the euro.

Technical charts show that EUR/GBP is range-bound after rebounding from its recent lows. Short-term support is at 0.8675; if it breaks below, it could test the 0.8650 area. Resistance is at 0.8720; a break above this area could extend to around 0.8750.

Daily technical indicators show that the Relative Strength Index (RSI) is at a neutral level, indicating that short-term bullish and bearish forces are balanced. The exchange rate may fluctuate and consolidate in the 0.8675-0.8720 range until the UK economic data and policy guidance become clear.

"EUR/GBP is trading cautiously in the short term, with investors focusing on UK GDP and industrial output results, which will be key factors in determining a breakout between bulls and bears," said Clara Dubois, a currency strategist at EUR/GBP.


Editor's opinion:

The EUR/GBP's short-term performance is primarily driven by expectations of a BoE rate cut and signals of prudent Eurozone policy. It is expected that the exchange rate will remain range-bound ahead of the release of UK economic data. Focus should be placed on UK economic performance and Eurozone policy trends to identify potential breakout opportunities.