EUR/GBP Downtrend Expected to Persist: Economic Outlook Dictates Direction

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The EUR/GBP currency pair is projected to continue its downtrend, having fallen to two-and-a-half-year lows, as economic conditions in the eurozone deteriorate in comparison to the UK, driven by US trade tariffs, political instability in Germany, and divergent monetary policies, according to industry analysts.

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The EUR/GBP exchange rate has taken a significant downturn, recently trading around 0.8280, which marks its lowest level since early 2021. Several key factors are influencing this trend, primarily attributable to an overall bleaker economic outlook for Europe compared to the UK. The continued weakening of the euro against the pound sterling is being exacerbated by fears of adverse effects from impending US trade tariffs on the eurozone, which is grappling with already subdued economic growth.

Kenneth Broux, a senior strategist at Société Générale, noted, “The political crisis in Germany, dovish ECB pricing versus Fed and BoE, and the threat of tariffs on EU exports to the US are combining for a bleak backdrop for the euro into year-end. We cant see any lasting bounce materializing until after the German confidence vote and snap elections.” This sentiment is echoed by analysts across the board as they assess the potential repercussions of these tariffs, which could drastically impact the eurozone's GDP. Economists at Nomura have projected a cumulative fall in eurozone GDP by at least 0.3 percentage points over 2025-26 due to the tariffs, which amount to approximately €500 billion annually or 2.5% of GDP.

On the other side of the coin, the UK economy appears more stable, with resilient economic indicators suggesting that the Bank of England (BoE) will likely maintain higher interest rates compared to the European Central Bank (ECB). While the BoE‘s current bank rate stands at 4.75%, the ECB’s main refinancing operations rate is 3.40%. The expected higher interest rates in the UK contribute to a stronger pound compared to the euro, further pressuring the EUR/GBP pair downwards.

The EUR/GBP‘s recent downtrend has been marked by a series of bearish price actions, and technical analysts have noted that it has decisively broken below prior support levels. The pair’s ongoing bearish trend has persisted across all major timeframes, with indicators such as the Relative Strength Index (RSI) signaling oversold conditions but with continued selling momentum. Despite the detection of oversold signals, analysts warn that such conditions may extend before a potential pullback could take place.

The most recent trading sessions saw the EUR/GBP pair experiencing a slight rebound following a five-day losing streak. However, market sentiments remain pessimistic as many traders and analysts anticipate the pair might confront further declines, potentially testing lower support levels. Technical analysis suggests that key resistance levels to look out for are around 0.8400, while further drops could see the euro trading towards lows near 0.8280 and below.

Analysts have also pointed toward the relative resilience of GBP in the geopolitical landscape compared to the euro, with Goldman Sachs highlighting the pound‘s positive alignment to risk-on sentiments. Should equity markets in the US continue to rally as anticipated due to forthcoming fiscal policies, the pound could benefit further, compounding EUR/GBP’s downward pressure.

Moreover, ongoing economic reports from both regions will further clarify the trajectory for the currency pair. Upcoming events such as UK GDP data and eurozone PMI data could be crucial in setting the stage for subsequent movements in the EUR/GBP pair. The trading outlook hinges heavily on the contrasting monetary policy strategies employed by the BoE and ECB, along with broader economic indicators that would illustrate the strength or vulnerability of either economy.

Overall, as long as the eurozone's economic outlook remains dim in contrast to the UK's, and as tariffs loom, the downtrend in EUR/GBP is expected to persist. Currency traders are advised to maintain caution and stay informed of the technical and fundamental developments influencing this key pair.

Conclusion

In summary, the EUR/GBP pair is expected to remain under strong bearish pressure due to ongoing economic challenges in the eurozone compared to a comparatively stable UK economic environment. Traders should closely monitor forthcoming economic releases and geopolitical events, as these could drive significant shifts within the pair. With current technical indications favoring further declines, caution and strategic positioning will be critical for traders navigating these volatile market conditions.

Sources

• [FXStreet - EUR/GBP expected to continue downtrend as outlook bleaker for Europe than the UK]
• [FXStreet - EUR/GBP Price Analysis: Pair drops again, nears multi-year lows](https://www.fxstreet.com/amp/news/eur-gbp-price-analysis-pair-drops-again-nears-multi-year-lows-202411111607