The EUR/GBP pair remains steady due to limited economic data and cautious comments from the ECB. Trading is around 0.8684, showing little volatility. ECB officials offer modest support for the Euro, noting that they are comfortable as inflation variations are minor. However, they acknowledge some downside risks and emphasize the need for flexibility in policy adjustments.

Cautious Outlook

Gediminas Šimkus shared a careful perspective, indicating that interest rates will likely stay the same in February, even though future decisions remain unclear. He highlighted that inflation is expected to hover around 2%, with no immediate action planned for short-term data shifts. Markets expect the ECB to adopt a wait-and-see strategy, maintaining steady rates for an extended period. Meanwhile, the Bank of England suggests it may gradually lower rates, possibly stabilizing the Euro against the Pound. Recent UK data indicates that the BoE has some room to maneuver before making further rate changes, which supports the Pound. A January survey revealed that most analysts believe the BoE will hold rates during its February meeting, with some predicting cuts by the end of March. Key upcoming events include Eurozone sentiment surveys and Q4 GDP figures later this week, while UK events remain limited.

Comparing Central Bank Policies

Reflecting back to January 2025, cautious comments from central banks kept the EUR/GBP pair in a narrow range. The ECB’s uncertainty at that time led to low volatility, benefiting strategies that thrived in sideways markets. Currently, the situation has changed, with clearer policy diverging paths. The ECB has lowered its main deposit rate to 3.75% to support a slow economy, whereas the Bank of England has just initiated its easing cycle, with its Bank Rate at 5.0%. This significant interest rate gap continues to put pressure on the Euro compared to the Pound. This divergence is visible in market performance and economic data. Eurozone Q4 2025 GDP figures reflect nearly stagnant growth at 0.1%, while the UK achieved a slightly better growth rate of 0.3%. Implied volatility in EUR/GBP options has risen compared to early 2025, as traders prepare for upcoming moves from both central banks. This suggests that directional strategies are now more viable than they were a year ago. Traders might consider strategies that could capitalize on a potential decline in EUR/GBP, possibly towards the 0.8500 psychological level. Buying put options or setting up bearish put spreads could be smart ways to position for further weakness due to the interest rate gap. However, it’s crucial to monitor upcoming inflation data, as any unexpected strength in Eurozone price pressures may lead to a swift reversal. Create your live VT Markets account and start trading now.

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