- EUR/GBP weakens as the Pound Sterling holds steady amid caution over the BoE policy outlook.
- Traders adopt caution as uncertainty surrounding the Ukraine–Russia peace process resurfaces.
- The Euro could find support as signals suggest the ECB’s rate-cutting cycle has ended.
EUR/GBP extends its losses for the second successive session, trading around 0.8710 during the European hours on Tuesday. Volumes are expected to be thin due to the year-end holiday. Traders are also monitoring geopolitical tensions as uncertainty over the Ukraine-Russia peace process resurfaced. Russia’s foreign minister said Moscow’s negotiating stance would shift following alleged strikes on President Vladimir Putin’s residence.
The EUR/GBP cross faces challenges as the Pound Sterling (GBP) remains steady on a cautious tone surrounding the Bank of England’s (BoE) policy outlook. While UK inflation cooled to 3.2% in November, it remains well above the BoE’s 2% target. UK GDP expanded by 0.1% in the third quarter, meeting expectations, but the BoE projects flat growth in the final quarter.
BoE Governor Andrew Bailey signaled that interest rates are expected to ease further in a gradual manner, but cautioned that the scope for additional cuts is limited as rates approach their neutral level. Any moves beyond the latest cut are likely to be finely balanced and strongly driven by incoming data. The BoE lowered the policy rate by 25 bps to 3.75% in December, with a close 5–4 vote highlighting persistent inflation concerns.
However, the downside of the EUR/GBP cross could be limited as the Euro (EUR) could receive support on cautious sentiment surrounding the European Central Bank (ECB) policy outlook. The ECB held rates steady in December and signaled they are likely to remain unchanged for some time, with President Christine Lagarde noting that elevated uncertainty makes forward guidance on future rate moves difficult.
