EUR/GBP RETREATS FROM DAILY HIGHS ON MIXED EU AND UK DATA

Eurozone's GDP contracted by 0.1% QoQ in Q3, indicating a slowing economy despite the ECB's aggressive tightening.

In the UK, employment figures met expectations, but average earnings, including bonuses, rose more than forecast, signaling potential wage inflation.

Rabo Bank analysts predict a potential drop in EUR/GBP below 0.8700, citing weak German economic data and a possible technical recession in the Eurozone.

EUR/GBP reversed its course after hitting a daily high of 0.8730, retreating toward the 0.8700 figure in the mid-North American session after economic data from the Eurozone (EU) and the United Kingdom (UK) favored the latter. At the time of writing, the cross is seen trading at around 0.8700s for a loss of 0.14%.

Cross pair nears 0.8700 amid EU GDP contraction, strong UK employment ahead of UK CPI

Gross Domestic Product (GDP) in the UE contracted by 0.1% QoQ as expected in Q3 on the second estimate, and in yearly figures came at 0.1% aligned with estimates, signaling the economy is slowing down amid more than 400 basis points of tightening by the European Central Bank (ECB). Nevertheless, employment data from the bloc suggested the labor market is tightening, which could warrant the ECB could keep the door open for additional tightening.

On the UK front, the Office for National Statistics (ONS) revealed employment figures, which came as expected, though Average Earnings, including bonuses, from three months to date on a yearly basis rose 7.9%, exceeding forecasts of 7.4%, but below August’s 8.2%. That could warrant further action by the Bank of England (BoE), though recent commentary from its Chief Economist Huw Pill suggested they would not need to raise rates further.

Analysts at Rabo Bank expect the EUR/GBP to tumble below 0.8700, based “on the back of weak German economic data and our house view that the Eurozone may already be in a technical recession.”

Meanwhile, traders' focus shifted to the UK’s inflation report on Wednesday, with CPI in October on an annual basis expected to dip to 4.8% from 6.7%, and core is seen at 5.8% from 6.1%. Monthly figures for CPI is seen at 0.1%, down from September’s 0.5% jump