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- EUR/GBP declines to near 0.8720 in Wednesday’s early European session.
- The BoE delivered a rate cut in December but signaled caution, supporting the Pound Sterling.
- ECB kept interest rates unchanged earlier this month and hinted that they are likely to remain unchanged in 2026.
The EUR/GBP cross softens to around 0.8720 during the early European session on Wednesday. A cautious tone surrounding the Bank of England’s (BoE) policy outlook could provide some support to the Pound Sterling (GBP) against the Euro (EUR). Trading volumes are expected to remain thin ahead of the New Year holidays.
The UK central bank reduced interest rates from 4.0% to 3.75% at its December policy meeting, the lowest level in nearly three years. Governor Andrew Bailey said during the press conference that rates are likely to continue on a gradual downward path, but “how much further we go becomes a closer call” with each cut.
Money markets expect the BoE to deliver at least one rate reduction in the first half of the year and are pricing in nearly a 50% probability of a second cut before the year-end, according to Reuters.
The European Central Bank (ECB), however, kept rates unchanged and its outlook suggested less urgency for further cuts, which might help limit the EUR’s losses. ECB President Christine Lagarde highlighted a data-dependent, “meeting-by-meeting” approach. She added that the central bank is not pre-committing to any future rate path, though some economists anticipate the rates to remain steady through 2026.
On the other hand, heightened geopolitical uncertainty in Ukraine could weigh on the Euro. Russia accused Ukraine of launching a drone strike on the Russian presidential residence in northern Russia, prompting Moscow to reconsider its stance in peace negotiations, per Reuters. Ukraine dismissed Russian statements about the drone attack, and its foreign minister said Moscow was seeking “false justifications” for further strikes against its neighbor.
