Euro little changed against Pound Sterling as ECB, BoE outlooks stay in focus

• EUR/GBP trades sideways but is set to snap a three-week winning streak.
• Eurozone and UK economies both expanded by 0.4% in the second quarter.
• Markets fully price a September ECB hike, while the BoE is expected to hold rates steady.

EUR/GBP is little changed on Friday, extending the sideways pattern seen through most of the week as traders show a muted reaction to second-quarter Gross Domestic Product (GDP) data from both the Eurozone and the United Kingdom (UK). At the time of writing, the cross trades around 0.8543.

Eurostat’s second estimate confirmed that the Eurozone economy expanded by 0.4% in the second quarter, in line with the flash reading and up from no growth in the previous quarter. On an annual basis, GDP growth accelerated to 1.0% from an upwardly revised 0.5%.

Data released on Thursday showed that the UK economy also grew by 0.4% in the second quarter, matching forecasts but slowing from 0.6% in the first quarter. Annual growth improved to 1.2% from 0.9%, beating the 1.1% estimate.

The pair is on track to end the week in negative territory, with profit-taking likely weighing on the cross after three consecutive weekly gains. Meanwhile, traders remain focused on elevated Oil prices and their possible impact on inflation and the monetary policy outlook for the European Central Bank (ECB) and the Bank of England (BoE).

Markets are fully pricing in a September interest rate hike from the European Central Bank (ECB), which would be its second increase this year. Analysts at Nordea reiterate that they "continue to expect three more 25bp increases, taking the deposit rate to 3%," but note that they "revised the expected path of these hikes last month from consecutive to quarterly moves." In their updated baseline, Nordea now assumes "25bp rate hikes in September, December and March 2027."

The bank also highlights that geopolitical developments could materially alter the trajectory, arguing that "a quick and durable peace in the Middle East could reduce the pressure on the ECB to hike further, while a more notable escalation and longer-lasting disruption to energy markets could lead to faster and potentially more rate increases."

The BoE is likely to leave interest rates unchanged, with the pass-through from higher energy prices still limited. Next week’s Consumer Price Index (CPI) report will provide a fresh update on inflation.