EUR/GBP fell to about 0.8730 during the European session on Tuesday. The UK’s economy grew by 0.1% in the third quarter, meeting expectations. This decline is the fourth day in a row that the EUR/GBP rate has dropped. Although the Bank of England is likely to cut rates to 3.75%, worries about inflation may delay further cuts.

Money Market Projections

Money markets expect at least one rate cut in the first half of the year, with a nearly 50% chance of a second cut later. The European Central Bank (ECB) has held interest rates steady for the fourth time. The final reading of the UK’s GDP data supports the Pound. Meanwhile, the ECB has not committed to a clear rate strategy, suggesting that current rates may stay the same for now. The Pound Sterling, the UK’s currency, is affected by data like GDP and trade balances. Decisions made by the Bank of England about monetary policy are also crucial, especially regarding interest rates and inflation management. Economic data and trade balance can strongly influence a currency’s value and attract investor interest. Together, these factors help determine how the Pound Sterling performs in trading.

Central Bank Policy Divergence

As EUR/GBP hovers around 0.8730, the market is reacting to the Bank of England’s recent rate cut to 3.75%. While the UK’s Q3 GDP growth of 0.1% wasn’t strong, it met forecasts, keeping the Pound steady. This sets the stage for a potentially tense holiday trading season. The key issue in the coming weeks is how the central banks are diverging. The Bank of England has started cutting rates, while the ECB plans to maintain its rates for a while. This difference could favor the Euro over the Pound in the medium term. Recent data shows UK inflation remains a concern, with the Office for National Statistics (ONS) reporting it at 4.2% in November 2025, much higher than the Eurozone’s 2.4%. Due to ongoing inflation, the Bank of England is cautious about more cuts, giving the Pound some temporary strength. However, with UK retail sales down by 1.1% last month, pressure is building on the Bank of England to ease more in 2026. The recent drop in EUR/GBP might be a chance for those who think the ECB’s stronger position will ultimately drive the rate higher. Given the expected lower trading volumes between Christmas and the New Year, using options could be a smart way to prepare for a rebound. Buying EUR/GBP call options would enable traders to benefit from an upward move while limiting potential losses if the Pound remains strong. Historically, markets can react quickly to data during quiet holiday times. After Brexit, for example, we saw significant volatility in late 2020, where even small news generated major market movements with fewer traders available. While the long-term outlook may favor a higher EUR/GBP, we must stay vigilant for signs that current Pound strength is more than just a short-term reaction. Create your live VT Markets account and start trading now.

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