Euro Steadies Against Sterling as German Political Uncertainty and PMI Cap Moves

The euro traded in a narrow range against the pound on Monday, with the pair hovering around the 0.8575 level and failing to establish a clear trend. News that German Chancellor Merz's party suffered setbacks in regional elections raised concerns over political stability in Europe's largest economy, weighing on the euro's rebound momentum. Meanwhile, although falling international oil prices provided some support for the euro, this was partially offset by political uncertainty, leaving bullish and bearish forces broadly balanced.

**German Political Risk Weighs on Euro**

According to market reports, the ruling party's defeat in state elections undermined market confidence in the eurozone's political outlook. This factor offset the positive impact of lower oil prices, making it difficult for the euro to regain bullish momentum against the pound. Preliminary PMI data released earlier from Germany, the eurozone, and the UK all beat expectations, but safe-haven sentiment triggered by Middle East tensions limited the overall reaction space for European currencies.

**UK Politics and Data Intertwine to Influence Sterling**

On the sterling side, the UK's own political uncertainty also constrained the currency's direction. Market concerns over potential shifts in future fiscal policy direction increased the risk premium on UK assets, thereby reducing the pound's appeal. However, UK retail sales data improved more than expected, indicating the economy still retains some resilience, which limited further downside for the pound. In the near term, the tug-of-war between political risk and economic data makes it difficult for the euro-sterling pair to form a one-sided trend.

**Technical Picture Maintains a Firm Consolidation Pattern**

From a technical perspective, the pair recently broke above the upper boundary of its previous trading range and continues to hold above key moving averages, with the medium-term trend gradually turning bullish. The 0.8650 area has transformed into a significant support zone, and if a pullback holds steady there, the pair could test the 0.8700 psychological level again. On the downside, support is seen at 0.8620 and 0.8580, and as long as the pair holds above these levels, the medium-term bullish bias is unlikely to change significantly. Overall, the euro-sterling pair is expected to maintain a firm tone until UK political risks show clear signs of easing.