EUR/GBP traded sideways on Monday and stayed below 0.8750. The pair was rejected several times near that level and hovered around 0.8736. The Pound was slightly stronger than the Euro. Germany’s IFO Business Climate Index rose to 88.6 in February (vs. 88.4 expected), up from 87.6 in January. The Current Assessment Index climbed to 86.7 (vs. 86.1 expected), from 85.7. The Expectations Index rose to 90.5, matching forecasts and up from 89.6.

Eurozone Data In Focus

Markets stayed cautious ahead of Tuesday’s Eurozone inflation data and Germany’s fourth-quarter GDP report. Eurozone core HICP is expected at 2.2% year-on-year in January, down from 2.3% in December. Headline HICP is expected to stay at 1.7%. Preliminary inflation data from Germany, France, and Spain is due later this week. Market pricing suggests the ECB will keep policy unchanged through the year. In the UK, markets are pricing in possible Bank of England rate cuts as early as March after softer inflation and weaker jobs data. BoE policymaker Alan Taylor said there are “two or three more cuts to go before reaching a neutral rate” and warned that weaker productivity growth is a risk. The UK data calendar is light this week. That leaves EUR/GBP mainly driven by Eurozone releases and broader market sentiment.

Shifting Policy Divergence

In early 2025, EUR/GBP was stuck in a range below the 0.8750 resistance level as traders weighed central bank policy. That level remains an important psychological barrier, even though the pair now trades lower around 0.8680. The story, however, has changed a lot since last year. In 2025, the market expected Eurozone inflation to cool. Instead, it has picked up. The January 2026 flash estimate showed Eurozone core HICP rising unexpectedly to 2.9%, well above the ECB’s target. This has pushed the ECB to sound more hawkish, which is very different from its more neutral tone at the same time last year. At the same time, the Bank of England—once expected to cut rates sharply in 2025—is now on hold. After several cuts last year, UK inflation has stayed stubborn, holding at 2.5% in the latest reading. That has slowed any further dovish moves, as the BoE waits for clearer evidence. This new policy split—a hawkish ECB and a neutral BoE—should, in theory, support the Euro more than the setup we saw in 2025. But EUR/GBP has not rallied in a convincing way. That points to weakness in the Euro, or to market doubts about the outlook. It also suggests option traders may want strategies that benefit from a breakout. The biggest drag on the Euro still looks like Germany’s weak economy. German GDP contracted by 0.2% in the final quarter of 2025, extending a period of industrial stagnation. This leaves the ECB in a tough spot: it needs to fight inflation while the region’s largest economy struggles. With this clash between tighter-sounding policy and a weak growth backdrop, implied volatility may rise ahead of key data releases. Buying volatility through straddles or strangles could be a sensible approach. These strategies can profit from a strong move in either direction, which may be more likely than more sideways trading. Create your live VT Markets account and start trading now.

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