The EUR/GBP currency pair has surged above the key 0.8500 psychological barrier, reflecting a significant shift in sentiment driven by central bank policy divergence and economic data surprises. 

With Euro strength underpinned by recent European Central Bank (ECB) commentary and the British Pound (GBP) weighed down by a slew of disappointing UK data releases, traders are increasingly positioning themselves in favor of the Euro amid diverging macroeconomic narratives. Fimatron’s team delivers a structured, insightful overview of the matter at hand.

ECB Signaling End of Easing Cycle Boosts Euro

The Euro (EUR) has been bolstered by remarks from key ECB officials, suggesting that the monetary easing cycle may be nearing its end. Notably, Christine Lagarde, Isabel Schnabel, and Madis Muller all pointed to inflationary pressures stabilizing near the ECB’s target, implying reduced urgency for further rate cuts. 

These statements were interpreted by markets as hawkish, thereby increasing Eurozone yield appeal and pushing the EUR/GBP pair higher.

This apparent policy divergence from the Bank of England (BoE), which is now expected to adopt a more dovish trajectory, has accelerated demand for the Euro, particularly as traders reassess their expectations for the interest rate differential between the two regions.

GBP Under Pressure as UK Data Misses Expectations

The British Pound has come under broad selling pressure following a string of weaker-than-expected UK economic data releases. A disappointing Claimant Count Change, which saw a jump of +33,100 in May, significantly worse than the expected +9,500, has raised concerns about a deteriorating labor market.

In addition, UK GDP data, Goods Trade Balance, and Industrial and Manufacturing Production all missed forecasts. The National Institute of Economic and Social Research (NIESR) also downgraded its three-month growth estimate to 0.4%, down from 0.7% in April. These developments suggest softening domestic activity, reinforcing the view that the UK economy is losing momentum.

As a result, BoE rate cut expectations have intensified. According to a Reuters survey, most economists anticipate two 25-basis-point cuts in Q3 and Q4 2025, which would reduce the BoE base rate to 3.75% from the current 4.25%.

EUR/GBP Price Action: Technicals Confirm Bullish Momentum

The EUR/GBP has recently broken above both its 50-day and 100-day Simple Moving Averages (SMA), currently at 0.8485 and 0.8415, respectively. This breakout above major technical support zones reinforces the pair’s bullish momentum and reflects growing confidence in the Euro’s relative strength.

The current rally has taken the pair above the 0.8500 psychological level, with prices now testing a key Fibonacci resistance zone at 0.8515, which capped gains through most of May. A sustained break above this level could open the door for a move towards the next key resistance near 0.8600, and possibly toward the April swing high at 0.8738.

However, traders should note the Relative Strength Index (RSI) reading of 64, which, while confirming positive momentum, also suggests the pair is approaching overbought territory. A short-term pullback cannot be ruled out if prices fail to hold above 0.8500.

Key support levels to monitor on the downside include 0.8449, with deeper support near the May low of 0.8355 in the event of a reversal.

Macro Watch: Upcoming UK & Eurozone Data

Market participants are closely watching the upcoming economic calendar, particularly UK Consumer Inflation Expectations, which stood at 3.4% in the previous reading. Any signs of elevated inflation concerns could alter expectations for BoE policy and temporarily cushion the Pound.

From the Eurozone, the spotlight is on Germany’s final Harmonized Index of Consumer Prices (HICP) for May, expected to confirm an annual inflation rate of 2.1%. Additionally, April Industrial Production data is forecast to decline by 1.7% month-over-month, while annual output could increase by 1.4%, offering insights into the manufacturing sector’s resilience.

The EUR/GBP rally above 0.8500 is underpinned by a potent mix of ECB policy confidence and BoE rate cut expectations, as macroeconomic fundamentals increasingly favor the Euro. While upcoming data from both the UK and Eurozone could alter the near-term trajectory, the broader trend reflects investor positioning around central bank divergence, a theme likely to define the pair’s behavior in the coming weeks.

As technical and fundamental signals align, EUR/GBP bulls may find further opportunities if resistance at 0.8515 gives way, setting sights on 0.8600 and beyond, provided economic conditions and central bank rhetoric continue to support the current narrative.