EUR/GBP stays stable as Eurozone inflation eases, and the market waits for key UK data. The drop in the Eurozone’s Harmonized Index of Consumer Prices (HICP) indicates slowing inflation. December’s rate was revised down to 1.9% year-on-year from 2.0%. Core HICP, which excludes volatile items, remained at 2.3% year-on-year, down from 2.4%.

Potential Tariff Implementations

This inflation data supports the European Central Bank’s (ECB) careful, data-based approach. Meanwhile, tensions between the EU and the US create uncertainty, especially around possible tariffs from the US administration. EU officials are preparing potential countermeasures, while the UK favors discussions over tariffs. UK economic data this week will impact the GBP, with changes expected in unemployment and earnings. The unemployment rate may fall to 5% from 5.1%, and average earnings, including bonuses, are likely to decline slightly. Key upcoming metrics include UK Consumer Price Index (CPI), retail sales, and preliminary PMI figures, which are essential for the Bank of England’s outlook. The Euro is the official currency for 20 EU countries and significantly affects global markets, with a daily trade volume exceeding $2.2 trillion. Economic health, inflation, and trade balances are essential factors influencing the Euro’s value. Looking back to early 2025, the EUR/GBP pair was stable around 0.8670 as markets balanced slowing Eurozone inflation against UK uncertainties. Today, the situation has changed significantly, highlighting the clear economic divergence, pushing the pair lower to about 0.8550.

UK Economic Picture Firms Up

The visible disinflation trend in the Eurozone, evident a year ago, has now solidified. The latest Harmonised Index of Consumer Prices (HICP) for December 2025 shows just 1.7%, making markets consider potential rate cuts by the ECB later this year. This contrasts with the simple “prolonged pause” we discussed in early 2025. In contrast, the UK’s economic outlook has improved significantly since last year’s uncertainties. UK inflation remains stubborn, with December 2025’s Consumer Price Index at 3.1%, and unemployment has dropped to 4.2%, significantly lower than 5.1% in late 2024. This resilience enables the Bank of England to take a more hawkish position compared to the ECB. With this growing policy gap, derivative traders should think about positions that benefit from stronger sterling against the euro. This might include buying put options on EUR/GBP to speculate on continued downward movement with limited risk. Selling rallies in the pair through futures contracts also seems like a good strategy in the current market. In the coming weeks, we will closely monitor the UK’s January inflation data and the Eurozone’s preliminary PMI figures. Any signs of persistent inflation in the UK or further economic weakness in the Eurozone would support this trading viewpoint. Central bank officials’ speeches will also be crucial for understanding how policymakers interpret this new data. Create your live VT Markets account and start trading now.

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