The unexpected contraction of UK GDP in May reinforced expectations of interest rate cuts. The euro rose to 0.8615 against the pound. The market paid attention to new tariff trends in Europe and the United States.
2025-07-11 14:50:25
UK GDP shrinks again in May, expectations of interest rate cuts rise rapidly
Data released by the Office for National Statistics (ONS) on Friday showed that the UK's gross domestic product (GDP) fell by 0.1% month-on-month in May, which was not only lower than the market's expected growth of 0.1%, but also fell into contraction for the second consecutive month. Previously, GDP in April had also recorded -0.3%.
The string of weak data has significantly increased market expectations that the Bank of England (BoE) will accelerate its pace of interest rate cuts in the future. Money markets are currently betting that the UK may implement multiple interest rate cuts this year.
"The UK economy is showing signs of stagnation or even mild recession, and the monetary policy path will become more relaxed." - According to market research, Julia Thornton, macro strategist at Barclays Bank, UK, pointed out
Industrial and manufacturing data also fell short of expectations. Industrial output fell 0.9% month-on-month in May, far below the expected flat (0%); manufacturing output recorded -1%, and the downward pressure on the economy has significantly increased.
The euro faces uncertainty in Trump's tariff policy and still maintains its advantage in the short term
Although the euro was under pressure due to the uncertainty of European and American trade policies, the weakness of the pound was more prominent, keeping the EUR/GBP upward overall. Trump announced this week that he would impose a 35% tariff on Canadian goods and planned to implement a "flat rate" of 15% to 20% on most other trading partners. He also said that the EU would receive a formal tariff notice "today or tomorrow."
The move has triggered market concerns about the deterioration of economic and trade relations between Europe and the United States, and may drag down the euro.
"If trade relations between Europe and the United States deteriorate significantly, the euro will face similar external risks as the pound, which may break the current EUR/GBP steady state." - According to market surveys, Andreas Kellner, senior foreign exchange strategist at Societe Generale, said
However, at the current stage, the market is still mainly driven by the weakness of the British economy, and there is relative upside space for the euro against the pound in the short term.
From a technical perspective, EUR/GBP is currently in an upward channel, with key resistance above at 0.8640 and 0.8670. If it breaks through effectively, it may open up further upside space and test the year's high of 0.8705.
The downward support level is initially seen in the 0.8585 and 0.8550 range. If it falls below this area, the short-term upward trend may be invalidated.
Editor's opinion:
The short-term trend of EUR/GBP is mainly driven by the continued weakening of the British economy and the euro's wait-and-see attitude. If the data released by the UK in the future continues to decline, or the Bank of England releases a clearer signal of interest rate cuts, the pound may be further under pressure, thereby supporting the rebound of the euro against the pound.
The development of trade frictions between Europe and the United States will become a new risk factor for the euro's trend. Attention will be paid to whether the US official tariff list covers key EU export categories.
Data released by the Office for National Statistics (ONS) on Friday showed that the UK's gross domestic product (GDP) fell by 0.1% month-on-month in May, which was not only lower than the market's expected growth of 0.1%, but also fell into contraction for the second consecutive month. Previously, GDP in April had also recorded -0.3%.
The string of weak data has significantly increased market expectations that the Bank of England (BoE) will accelerate its pace of interest rate cuts in the future. Money markets are currently betting that the UK may implement multiple interest rate cuts this year.
"The UK economy is showing signs of stagnation or even mild recession, and the monetary policy path will become more relaxed." - According to market research, Julia Thornton, macro strategist at Barclays Bank, UK, pointed out
Industrial and manufacturing data also fell short of expectations. Industrial output fell 0.9% month-on-month in May, far below the expected flat (0%); manufacturing output recorded -1%, and the downward pressure on the economy has significantly increased.
The euro faces uncertainty in Trump's tariff policy and still maintains its advantage in the short term
Although the euro was under pressure due to the uncertainty of European and American trade policies, the weakness of the pound was more prominent, keeping the EUR/GBP upward overall. Trump announced this week that he would impose a 35% tariff on Canadian goods and planned to implement a "flat rate" of 15% to 20% on most other trading partners. He also said that the EU would receive a formal tariff notice "today or tomorrow."
The move has triggered market concerns about the deterioration of economic and trade relations between Europe and the United States, and may drag down the euro.
"If trade relations between Europe and the United States deteriorate significantly, the euro will face similar external risks as the pound, which may break the current EUR/GBP steady state." - According to market surveys, Andreas Kellner, senior foreign exchange strategist at Societe Generale, said
However, at the current stage, the market is still mainly driven by the weakness of the British economy, and there is relative upside space for the euro against the pound in the short term.
From a technical perspective, EUR/GBP is currently in an upward channel, with key resistance above at 0.8640 and 0.8670. If it breaks through effectively, it may open up further upside space and test the year's high of 0.8705.
The downward support level is initially seen in the 0.8585 and 0.8550 range. If it falls below this area, the short-term upward trend may be invalidated.
Editor's opinion:
The short-term trend of EUR/GBP is mainly driven by the continued weakening of the British economy and the euro's wait-and-see attitude. If the data released by the UK in the future continues to decline, or the Bank of England releases a clearer signal of interest rate cuts, the pound may be further under pressure, thereby supporting the rebound of the euro against the pound.
The development of trade frictions between Europe and the United States will become a new risk factor for the euro's trend. Attention will be paid to whether the US official tariff list covers key EU export categories.
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