EUR/GBP holds around 0.8300 after German GDP data

EUR/GBP continued its upward momentum during the European trading session, hovering around 0.8290. The currency cross remained stable following the release of German gross domestic product (GDP) data on Tuesday.

The German economy contracted by 0.2% quarter-on-quarter in the fourth quarter of 2024, in line with the initial estimate, and grew by 0.1% in the previous quarter. The decline was mainly due to the negative contribution of net trade, with exports falling 2.2% while imports rose 0.5%. On an annual basis, the economy contracted 0.2% in the fourth quarter, confirming initial forecasts and marking the sixth consecutive quarter of decline.

The EUR/GBP cross remains under pressure due to the weakness of the euro (EUR) following the German federal elections, in which no single party won a clear majority, a situation that could further complicate the growth outlook for an already weakening economy.

Friedrich Merz, leader of Germany's Christian Democratic Union (CDU), is expected to become German Chancellor after winning the largest number of votes. However, forming a coalition government is expected to be challenging, which could delay the implementation of policies.

Investors are now looking for new signals on the direction of the Bank of England’s (BoE) monetary policy over the coming year. Earlier this month, the Bank of England cut its key lending rate by 25 basis points (bps) to 4.5%, signalling a gradual easing of policy.

However, BoE Monetary Policy Committee (MPC) member Swati Dhingra argued for more aggressive monetary expansion, citing weak demand. In his Birkbeck speech on Monday, Dhingra said the current pace of rate cuts - 25 basis points per quarter - would likely still leave monetary policy too tight by the end of 2025.