EUR/GBP Stays Weak Despite Upbeat German GDP Data

EUR/GBP extended its recent decline on Tuesday, testing the 0.8550 area, its lowest level since July last year, and was last trading near 0.85496. Despite an upward revision to Germany's second-quarter GDP released earlier in the day, the optimistic data failed to lend support to the euro, with the cross marking a fourth consecutive daily decline.

**German Data Improvement Fails to Reverse Downtrend**

Improving German economic data should have provided momentum for the euro, but market reaction remained muted. According to market reports, although German GDP and consumer confidence figures beat expectations, EUR/GBP is still down nearly 0.85% on the week. This reflects that, under the current macro environment, improvement in a single economic indicator is insufficient to overturn broader concerns about the eurozone's outlook. In contrast, factors related to the UK may be offering the pound relative strength.

**Eurozone Faces New Dilemma of Too-Low Inflation**

After years of high inflation, the European Central Bank now faces the risk of inflation running too low. Forecasts suggest the eurozone's average inflation rate could be just 1.6% next year, notably below the 2% target. Part of the reason is that a stronger euro has lowered the price of imported goods. Analysts note that if the economic outlook deteriorates or inflation expectations fall further, the ECB may cut rates again in the second half of the year. Although rate cuts typically weaken a currency, the euro has shown resilience during the recent easing cycle—a contradiction that highlights the complexity of currency drivers. Still, the persistent decline in EUR/GBP indicates that concerns over eurozone growth prospects remain dominant.

**Pound's Relative Resilience Weighs on the Cross**

EUR/GBP's drop to a one-year low also reflects the pound's relative strength. Despite weak UK economic data, such as soft retail sales, the market appears more focused on the tariff shocks, export weakness, and policy challenges facing the eurozone. According to analysts, further euro strength could prove counterproductive, as exports may already be under pressure and weighing on growth. Against this backdrop, the euro's weak positioning against the pound is unlikely to reverse in the near term.