Euro Falls to 0.8336 Pounds Despite 0.4% Euro Zone Growth
Key Facts
The euro fell to 0.8336 pounds on Friday, October 30, its lowest level in 19 months, as the pair headed for a 3.15% loss over five consecutive weeks of declines. The drop came despite a preliminary reading showing that the euro zone economy grew more than expected quarter on quarter in the third quarter. FXStreet said market pricing of a possible Bank of England rate increase supported sterling. Futures priced in a 25-basis-point increase with near certainty. Investors are watching the bank’s meeting scheduled for November 5, but market pricing is not an announced decision.
Euro zone gross domestic product grew 0.4% in the third quarter, exceeding the 0.2% forecast in a Reuters poll. But growth slowed from 0.6% in the second quarter, a pace Reuters described as exceptional. Year on year, GDP rose 1.3% compared with the third quarter of 2025, against expectations of 1.1%. The two readings show that activity remained stronger than estimated, although the quarterly pace of expansion lost some momentum. Reuters said the region’s economy outperformed most estimates during the year, supported by investment and consumption.
Reuters attributed the economy’s resilience to heavy spending on artificial intelligence, defense and infrastructure, which boosted investment. Strong external demand also helped industry, while household spending continued as the high saving rate declined. Jack Allen-Reynolds of Capital Economics said households and companies had not cut spending because of the Iran war. The report added that growth was less than half the pace of U.S. expansion, but exceeded the gloomy forecasts that followed the outbreak of the war. Paolo Grignani of Oxford Economics described the region’s economy as “resilient amid geopolitical turmoil and a worsening inflation environment.”
Growth strength was uneven across economies, and the headline reading was also affected by a surge in Ireland. Irish GDP grew 5.5% quarter on quarter in the third quarter, an exceptional performance linked to volatility in the country’s data because of the presence of multinational companies. Reuters noted that the increase inflated the regional reading. By contrast, the French economy contracted, while Italy stagnated, according to the comparison in the coverage. These disparities show that the strength of the average does not reflect a uniform path across euro zone economies.
A weak labor market limited the impact of the positive growth surprise: the euro zone unemployment rate rose to 6.5% in September, above the market forecast of 6.4%. At the same time, inflation remained above the European Central Bank’s 2% target, and the Associated Press said inflation reached 3.8% in October. Reuters linked higher oil prices to risks to growth, trading margins and terms of trade, because Europe is a net energy importer. Brent crude was reported above $112 a barrel in an FXStreet report, near its highest levels in five months. The European Central Bank said persistently higher energy prices increase inflation risks and weigh on the growth outlook.
High borrowing costs are adding to pressure on activity; the European Central Bank has warned that their rise could weaken the region’s economy. German borrowing costs, which serve as a benchmark for the bloc, reached their highest levels in decades during October, while the borrowing premium on other countries, particularly France, also increased. Reuters said accelerating prices in most major economies could push the region’s annual inflation rate to 3.9% or more, against the central bank’s 2% target. A bank survey published on Friday showed a sharp rise in inflation expectations, with the pace of price increases potentially not returning to target before 2028. Bank of Italy Governor Fabio Panetta said further interest rate increases may be needed.
At its meeting on Thursday, the European Central Bank left interest rates unchanged, after raising them twice during 2026 to contain the energy shock linked to the Iran war. An economist at Saltmarsh Economics said a rate increase in December “is firmly on the table” because of rising inflation risks. The euro had fallen 0.21% against the pound to 0.835 on October 29, according to prices cited by Reuters, before setting a new low the following day. Focus now turns to the Bank of England meeting on November 5, which will be accompanied by a meeting summary, minutes and monetary policy report. The European Central Bank’s December decision will follow, as energy and inflation risks keep the euro zone rate outlook under scrutiny.