EUR/GBP is currently strong at 0.8680, ending a three-day decline. The weak Eurozone flash Services PMI contrasts with stronger readings from German Manufacturing and Services PMIs, creating a mixed economic environment for the Euro. The German IFO Business Sentiment Index is due later today. The Eurozone flash Purchasing Managers Index (PMI) reveals that the services sector weakened in January, dropping to 51.9. This figure is lower than December’s results and below market expectations. However, the German Services PMI remains in growth, and the Manufacturing PMI has improved. The European Central Bank (ECB) has chosen a cautious approach, avoiding rate discussions in December.

Pound Sterling Performance

Stronger-than-expected UK economic data may support the Pound Sterling (GBP). These outcomes have led to forecasts predicting delays in additional rate cuts from the Bank of England (BoE). The BoE is expected to keep rates steady in February. The Pound Sterling (GBP) is the fourth most traded currency worldwide, making up 12% of all forex transactions, with an average of $630 billion traded daily. A robust economy might prompt the BoE to increase interest rates, which would strengthen the GBP. Positive trade balances can also lift a currency by boosting foreign demand for exports. Lallalit Srijandorn has been living in France since 2019 and works as a digital entrepreneur in Paris and Bangkok. Reflecting on the late 2025 situation, there was a clear division between mixed Eurozone data and stronger UK figures, pushing EUR/GBP towards 0.8680. This gap has widened, leading the pair downward toward the 0.8550 level as we enter 2026. This established downtrend should guide traders in the upcoming weeks.

European Central Bank and Bank of England Policies

The European Central Bank’s hawkish stance has been supported by recent data, with Eurozone services inflation remaining sticky at 3.4% in the last quarter of 2025. In last week’s meeting, officials indicated that rate cuts are not on the agenda, removing a potential driver for Euro strength. This means any upward movements in the EUR/GBP pair are likely to be brief and met with selling pressure. Conversely, the strong UK economic performance seen late last year has put pressure on the Bank of England to maintain stable rates. With UK inflation closing 2025 at 3.8%, significantly above the BoE’s target, market expectations for a rate cut by June have diminished. Swap markets have shifted from fully pricing a cut to indicating less than a 50% chance, supporting the Pound’s value. Given this context, we suggest that derivative strategies should support further strength of the sterling against the euro. Traders might consider buying put options on EUR/GBP to benefit from a continued decline, with strike prices around the 0.8500 level offering a good risk-reward balance. Selling call options with strike prices above 0.8600 would also be a smart strategy to earn premiums since the pair is unlikely to break significant resistance. Create your live VT Markets account and start trading now.

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