The euro weakened against the pound on Thursday, with EUR/GBP trading near 0.8695 in early European dealings, after stronger-than-expected U.K. growth figures lifted sterling across major currency pairs.
Fresh data from the Office for National Statistics showed the U.K. economy expanded faster than forecast in February, reinforcing expectations that the Bank of England may keep policy relatively firm compared with the European Central Bank.
U.K. growth beats expectations
U.K. gross domestic product rose 0.5% month-on-month in February, reversing a flat reading in January and comfortably beating expectations for a 0.1% increase. The figures point to a pickup in business activity at the start of the year.
Industrial production also climbed 0.5% in February after a 0.1% decline previously, signalling broader improvement across sectors. The stronger data immediately boosted demand for the pound, which gained ground not only against the euro but also versus other major currencies.
ECB seen on hold as euro remains under pressure
In the euro area, the European Central Bank is widely expected to leave interest rates unchanged at its April meeting. President Christine Lagarde said earlier in the week that the ECB needed to remain “completely agile” and wait for more information on inflation risks, particularly those linked to recent tensions in the Middle East.
Market pricing suggests roughly a 20% chance of a rate move this month, with a shift by June seen as almost fully priced in and the possibility of another adjustment later in the year. These expectations have helped keep the euro under pressure relative to peers, including the pound.
Diverging economic paths
The latest figures highlight a growing divergence between the U.K. and the euro area, feeding into a clearer policy split between the Bank of England and the ECB.
In the U.K., annual consumer price inflation stood at 3.0% in the 12 months to February 2026, unchanged from January. In contrast, euro area inflation accelerated to 2.5% in March from 1.9% in February, driven mainly by a rebound in energy costs.
While the British services sector has remained broadly resilient, the S&P Global U.K. services PMI eased sharply to 50.5 in March from 53.9 in February, signalling slower growth. On the continent, eurozone retail sales slipped 0.2% in February after a period of stagnation, underlining fragile consumer demand.
Role of the Bank of England and key drivers for sterling
The pound, issued by the Bank of England, remains one of the most actively traded global currencies, representing around 12% of global foreign exchange turnover, or about $630 billion a day based on 2022 data. Key pairs include GBP/USD, GBP/JPY and EUR/GBP.
Monetary policy decisions by the Bank of England, especially on interest rates, are the primary driver of sterling’s value. When inflation rises above target, the bank typically raises rates to cool price pressures; periods of softer inflation tend to bring a more accommodative stance to support growth.
Broader economic indicators such as GDP, labour market trends and trade balances also shape sterling performance. Strong activity data typically supports the pound through increased foreign capital inflows, while weaker releases tend to have the opposite effect. A positive trade balance, where exports exceed imports, generally underpins currency demand as global buyers need the domestic currency to settle transactions.
Focus shifts to upcoming central bank decisions
Attention now turns to the next Bank of England policy meeting on 30 April, where rates are widely expected to remain at 3.75%. Any surprise move, or a notably different tone in the accompanying statement, could trigger sharp price swings in sterling crosses.
For traders in fast-moving foreign exchange markets, the detailed minutes from central bank meetings will be as closely watched as the headline rate decisions. These records offer insight into the balance of views among policymakers and provide clues about the likely path of future policy.
Over the coming weeks, inflation releases and employment data from both the U.K. and the euro area are expected to be key catalysts for further currency volatility. Any unexpected strength or weakness in these indicators could rapidly alter expectations for monetary policy and, with it, the trajectory of EUR/GBP.
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