The EUR/GBP exchange rate dropped to about 0.8660, which is a 0.15% decrease. This decline is linked to German inflation data aligning with the European Central Bank’s (ECB) goals. The Harmonized Index of Consumer Prices showed a monthly inflation rate of 0.2% in December, down from an annual rate of 2.6%. This data suggests that inflation is easing in Germany. At the same time, the Pound Sterling held steady as everyone waits for UK employment and inflation data coming next week. The UK economy grew by 0.3%, exceeding forecasts of 0.1%. This news eased fears about rapid monetary policy changes from the Bank of England. The Bank has suggested a gradual easing of its policy, which might help support the Pound against the Euro as UK economic data is released. Consequently, the EUR/GBP rate is affected by these upcoming data and potential policy shifts.

Other Currencies

In terms of other currencies, the Euro had a mixed performance. It got stronger against the US Dollar but weaker against other major currencies like the GBP and AUD. A trading table showed the percentage changes of the Euro against other major currencies, highlighting its strengths and weaknesses for that day. The current EUR/GBP market is following a trend seen in 2025. Last year, when German inflation briefly met the ECB’s 2% target, it supported the idea that Eurozone monetary policy would stay stable. This situation continues to put pressure on the Euro, especially against the sturdy Pound Sterling. Recent data complicates this outlook. The Eurozone’s core inflation rate for December 2025 remained stubbornly high at 3.4%. This indicates that underlying price pressures are still a concern, leading the ECB to be cautious. Traders are now using options to guard against any unexpected hawkish signals from ECB officials in the near future. On the UK side, the economic strength we noted in 2025 looks stable. Recent wage growth figures from late 2025 were high at 7.2%, leaving the Bank of England with little reason to cut interest rates anytime soon. This ongoing wage pressure supports our view that holding long positions in the Pound against the Euro is favorable.

Future Outlook

In the coming weeks, a bearish outlook on the EUR/GBP pair seems reasonable, with a chance for further declines. We might consider buying put options on EUR/GBP, which would benefit from a fall in the pair’s value while clearly setting our maximum risk. Selling EUR/GBP futures contracts is a more straightforward way to express this view, but it requires closer management. The upcoming UK inflation and employment data will be crucial for the pair. If these figures are strong, as they were last year when GDP surprised positively, it could reinforce the Bank of England’s position and push EUR/GBP below the 0.8600 mark. Conversely, any unexpected weakness in UK data would challenge this outlook and prompt a reassessment of our positions. Create your live VT Markets account and start trading now.

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