UK GDP Surpasses Expectations
UK GDP rebounded in June with a 0.4% growth, surpassing the anticipated 0.1%, after a 0.1% drop in May. Q2 growth was reported at 0.3%, compared to a 0.1% forecast, while annual growth was 1.2%, slightly lower than the previous 1.3%.
Eurozone GDP recorded a 0.1% growth in Q2, matching forecasts, and annual growth remained steady at 1.4%. Employment rose by 0.1% in Q2 and 0.7% year-on-year, slightly above expectations.
Eurozone industrial production fell 1.3% in June, more than the expected 1.0% decline, reversing a 1.1% gain in May. Annual output growth dropped to 0.2%, missing the 1.7% expectation and falling from 3.1% in May.
We are seeing EUR/GBP test the 0.8600 support level, currently trading around 0.8605. This pressure comes from recent UK growth figures which outpaced a much slower Eurozone economy. The weak industrial production data from the Euro area further supports a bearish outlook for the common currency.
Monetary Policy Divergence
Given this divergence, we are considering strategies that would profit from a further decline in the EUR/GBP rate. This includes buying put options to speculate on a move lower or shorting futures contracts. The fundamental data suggests the path of least resistance is downwards for the pair.
This view is strengthened by the current monetary policy divergence we are seeing as of August 2025. With the latest UK inflation data for July 2025 holding stubbornly at 2.9%, the Bank of England is maintaining its base rate at 4.5%. In contrast, the European Central Bank, facing inflation of just 2.2%, has already cut its main rate to 3.0% to stimulate its sluggish economy.
Looking back, we saw similar dynamics throughout 2024, when the pair decisively broke below the 0.8500 handle on rate differential news. The upcoming inflation figures for the UK and Eurozone, due next Wednesday, will be critical. A surprisingly high UK print could be the catalyst that finally breaks the 0.8600 support for good.
We expect volatility to pick up heading into that announcement. Using options can be a prudent way to define risk, allowing us to position for a downward move while capping potential losses if the data surprises. This is especially important as the 0.8600 level has acted as a floor for two months.
