EUR/GBP fell on Wednesday. The Euro weakened after reports that ECB President Christine Lagarde may leave before her term ends in October 2027. The pair traded near 0.8723, down about 0.17% on the day. The report added uncertainty around Eurozone policy. An ECB spokesperson told Euronews the claim is false and said Lagarde has not decided to end her term early.

Euro Policy Uncertainty

The report followed news that Bank of France Governor François Villeroy de Galhau will step down in June, before his term ends. On Wednesday, he said the ECB has won the fight against inflation. He added that inflation in France is not too low, and said his decision to step down is personal. Sterling held firm after mixed UK inflation data and weaker labour market figures released on Tuesday. Together, these releases have strengthened the case for more Bank of England rate cuts. UK CPI fell 0.5% month on month in January after a 0.4% rise in December. Annual CPI slowed to 3.0% from 3.4%, while core CPI eased to 3.1% from 3.2%. Output PPI was flat (0.0%) on the month versus 0.2% expected, and slowed to 2.5% year on year from 3.1%. RPI fell 0.5% month on month after a 0.7% rise. It eased to 3.8% year on year from 4.2% (3.9% forecast). Markets expect a BoE cut in March and almost two more this year. By contrast, the ECB is expected to hold rates through 2026.

Upcoming Data Watch

Attention now turns to Friday’s preliminary PMI data for the Eurozone and the UK, along with UK Retail Sales. We see the recent drop in EUR/GBP as a short-term response to uncertainty around the European Central Bank. Markets are adding a risk premium after the headlines about President Lagarde, and that appears to be outweighing the more important economic backdrop. This near-term weakness could create an opportunity in the weeks ahead. For us, the main driver is the widening policy gap between the Bank of England and the ECB. Today’s data confirms UK annual inflation has cooled to 3.0%, well below the 4.2% rate seen in late 2025. That keeps the door open for BoE rate cuts. In contrast, Eurostat’s January flash estimate showed Eurozone inflation holding firmer at 3.3%. This supports the view that the ECB will keep its deposit facility rate at 4.00% for the foreseeable future. Because of this gap, we see dips toward 0.8700 as chances to build long positions. Options may be a good way to express this view. For example, buying EUR/GBP call options with April or May 2026 expiries could position for a rebound while limiting downside risk if ECB political noise increases. Looking back at 2025 price action, the pair found strong support near 0.8650. That suggests the current downside may be limited. We are therefore looking for a move back toward 0.8800, the level seen in Q4 last year. Friday’s PMI releases and UK retail sales will be key to confirming whether the divergence story remains intact. Create your live VT Markets account and start trading now.

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