Pound Holds Firm Against Euro on Stronger Growth and Hawkish Policy Signals

EUR/GBP extended its defensive stance on Thursday, remaining on the back foot for a fifth consecutive session after failing to challenge the 0.8600 psychological level last week. At the time of writing, the cross was trading near 0.85356, holding in the lower ranges seen since mid-August, as the pound stays supported by robust economic data and hawkish policy signals.

**German Data Improvement Fails to Boost Euro**

Data released earlier on Thursday showed Germany's September IFO business climate index rose to 89.9 from 88.8 in August, beating the market consensus of 89.0. The expectations component jumped to 90.4 from 89.0 the previous month, marking the highest level since February. The IFO Institute noted that the manufacturing index rose again, supported mainly by improved expectations in the electrical equipment sector. However, surveyed firms reported a deterioration in current conditions, which partly offset the positive signals from the data, and the euro failed to draw meaningful support from it.

**Pound Benefits from Economic Resilience and Hawkish Stance**

The UK economy has shown remarkable resilience, with July's strong monthly GDP report showing growth of 0.4% for the month, far exceeding market expectations of zero growth. This data confirms the overall robust tone of recent UK economic figures. Meanwhile, hawkish voices within the Bank of England have strengthened, with markets still pricing in around 22 basis points of further tightening within the year. Although high interest rates carry the risk of slowing economic growth, the interest rate differential advantage currently provides key support for the pound, keeping EUR/GBP under sustained pressure.

**External Factors Add to Euro Pressure**

Beyond the pound's own strength, the euro faces pressure from other fronts. As US interest rates undergo a similar upward repricing, the euro-US yield differential remains broadly unchanged, preventing the euro from benefiting from the European Central Bank's hawkish stance. Market analysts suggest that beyond monetary policy, economic data continues to deliver upside surprises, which validates the ECB's hawkish position. However, with a lighter eurozone economic data calendar this week, the euro's trajectory is expected to be driven more by external factors, and its weakness against the pound may prove difficult to reverse in the near term.