The EUR/GBP exchange rate rose to about 0.8785 during early Thursday in Europe. The Pound lost ground against the Euro due to disappointing UK inflation data and the likelihood of a Bank of England (BoE) rate cut. The UK Consumer Price Index (CPI) increased by 3.2% year-on-year in November, down from 3.6% in October and below the expected 3.5%. Core CPI also rose by 3.2%, which was less than the anticipated 3.4%.

Expected Rate Cuts

There is a strong chance that the BoE will cut rates by a quarter-point in December, with more cuts expected in 2026. Meanwhile, the European Central Bank (ECB) is likely to keep its policy rates steady, with the 2% deposit rate unchanged since July. While some ECB officials have hinted at a possible rate hike next year, most economists believe rates will remain unchanged through 2026 and 2027. This pause on ECB rate cuts could help support the Euro against the Pound in the short term. With significant decisions from major central banks today, there is a clear policy gap between the UK and Europe. The BoE seems ready to lower interest rates, while the ECB appears set to hold steady. This creates a clear opportunity to bet on a weaker Pound against the Euro. The latest data backs this idea, showing UK inflation cooling to 3.2% in November. Additionally, recent figures from the Office for National Statistics (ONS) reveal that UK retail sales fell by 0.4% last month, giving the BoE good reasons to stimulate the economy. This economic slowdown signals that further rate cuts may be on the horizon for 2026.

Monetary Policy Shift

This marks a significant change from the aggressive rate hikes seen globally in 2023 and 2024. The BoE is among the first major central banks to start easing. For traders, this indicates that volatility in GBP pairs will likely remain high as the market adjusts to this new direction in monetary policy. In contrast, the Eurozone economy appears stronger, with core inflation holding steady at around 2.8%, according to the latest Eurostat report. This supports the ECB’s decision to keep its deposit rate at 2.0%, a level maintained since July 2025. This steadiness in ECB policy gives the Euro a relative strength. In the upcoming weeks, traders should consider strategies that profit from a rising EUR/GBP exchange rate. Buying EUR/GBP call options with a strike price near 0.8800 and an expiry in late January or February 2026 provides a low-risk opportunity to benefit from the expected increase. This approach takes advantage of the widening interest rate gap between the two central banks. The overall global situation also favors this regional trade. Recent US CPI data met expectations at 3.1%, suggesting that the US Federal Reserve will likely remain cautious, lowering the chance of a significant dollar-driven event that could affect our EUR/GBP position. The focus is clearly on the emerging divergence in Europe. Create your live VT Markets account and start trading now.

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