EUR/GBP posts modest gains above 0.8700 despite weak German Industrial Production data

The EUR/GBP cross posts modest gains near 0.8710 during the early European trading hours on Thursday. The Euro (EUR) remains firm despite the downbeat German Industrial Production report. The attention will shift to the German Harmonized Index of Consumer Prices (HICP) inflation data, which will be published on Friday.

German industrial output falls unexpectedly in February, declining 0.3% MoM over the month, Destatis reported on Thursday. This figure followed 0% recorded in January (revised from -0.5%) and came in weaker than the expectation of a 0.9% rise. Annually, German Industrial Production arrived at 0% in the same period, following January’s revised 0.9% decrease. 

The European Central Bank (ECB) has adopted a hawkish tone, with policymakers signaling a shift toward potential further tightening if price pressures persist. This, in turn, could provide some support to the EUR against the GBP. Traders have ramped up bets, with markets now fully priced in two rate hikes and more than a 50% chance of a third move by December, according to Reuters.  

On the UK’s front, traders have cooled expectations for aggressive rate hikes from the Bank of England (BoE) following news of a tentative ceasefire. BoE Governor Andrew Bailey cautioned traders that markets may be "ahead of themselves" in pricing in multiple rate hikes, emphasizing that the current "right place to be is on hold."