Forex News
- EUR/GBP weakens as Sterling draws support from UK labour-market data.
- Euro pressured by softer Eurozone PMI readings.
- Focus shifts to BoE and ECB policy decisions later this week.
The Euro (EUR) weakens against the British Pound (GBP) on Tuesday, as Sterling outperforms most major peers following the release of UK labour market data. At the time of writing, EUR/GBP trades around 0.8763, down nearly 0.25% on the day, snapping a three-day winning streak.
Data from the UK Office for National Statistics (ONS) showed that labour-market conditions continued to ease in October, even as wage growth remained firm. Average Earnings Excluding Bonuses rose 4.6% in the three months to October, slightly below the previous 4.7% but above expectations of 4.5%, while Average Earnings Including Bonuses increased 4.7%, easing from 4.9% and beating forecasts of 4.4%.
At the same time, employment fell by 17,000, following a 22,000 decline previously, while the ILO Unemployment Rate edged up to 5.1% from 5.0%, in line with expectations. The Claimant Count rose by 20,100 in November, below forecasts of 22,300, and the Claimant Count Rate ticked higher to 4.4% from 4.3%, reinforcing signs of gradual labour-market cooling.
The data did little to derail expectations that the Bank of England (BoE) will lower interest rates at its meeting on Thursday, with markets widely anticipating a 25 basis point cut.
Further underpinning the Pound, UK business activity showed signs of improvement in December, according to the latest S&P Global Flash Purchasing Managers Index (PMI) survey. The Composite PMI Output Index rose to 52.1 from 51.2, a two-month high, with both services activity and manufacturing output accelerating. The Services PMI increased to 52.1, while the Manufacturing PMI climbed to 51.2, its highest level in 15 months.
On the Euro side, softer Eurozone activity data added further pressure to the single currency. The latest HCOB Flash Eurozone Composite PMI Output Index eased to 51.9 in December from 52.8 in November, marking a three-month low.
The slowdown was driven by services, with the Services PMI Business Activity Index slipping to 52.6 from 53.6, while manufacturing remained in contraction, as the Manufacturing PMI fell to 49.2 from 49.6, an eight-month low, and manufacturing output dropped to 49.7, the weakest in ten months.
Looking ahead, markets are also focused on the European Central Bank’s (ECB) policy decision on Thursday, where policymakers are widely expected to leave all three key interest rates unchanged. Attention will turn to inflation data on Wednesday, with UK Consumer Price Index (CPI) and Producer Price Index (PPI) figures alongside the Eurozone Core Harmonised Index of Consumer Prices (HICP) due for release, offering fresh signals on the inflation ahead of the central bank meetings.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Russia’s top Palladium producer expects a notable supply deficit for Platinum in 2025, while Palladium remains mostly balanced, highlighting diverging market views compared with the World Platinum Investment Council’s forecasts, Commerzbank's commodity analyst Carsten Fritsch notes.
Palladium market balanced this year
"Russia's largest Palladium producer yesterday published updated forecasts for the Platinum and Palladium market balances. According to these forecasts, the Platinum market is expected to show a supply deficit of 300,000 ounces this year, excluding investment demand. Including investment demand, the deficit is expected to amount to 400,000 ounces."
"For Palladium, the company expects a balanced market without investment demand and a deficit of 200,000 ounces including this component. For the coming year, the company only published forecasts without investment demand. The market balance for Platinum is expected to be roughly the same as this year, and the Palladium market is expected to show a deficit of 100,000 ounces."
"By way of comparison, the World Platinum Investment Council predicted in its November report that the Platinum market is likely to be almost balanced next year, including investment demand. Without investor demand, which the WPIC classifies as including bar and coin purchases, ETFs and changes in exchange-registered inventories, the Platinum market would actually be oversupplied by around 380,000 ounces. This does not provide any grounds for a further price increase."
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