The Euro (EUR) extended modest gains against the British Pound (GBP) on Wednesday, with EUR/GBP trading near 0.8785 in early European dealings. The pair remains supported ahead of the European Central Bank’s (ECB) policy decision due Thursday, as traders position for the bank to hold interest rates steady for a third consecutive meeting.
ECB Expected to Keep Rates Unchanged
The ECB is widely expected to maintain current interest rates, reflecting controlled inflation and signs of gradual recovery in the Eurozone economy. According to market pricing, traders see an 80% probability of a rate cut in 2026, a shift from September when the ECB’s hawkish tone had discouraged expectations of future easing.
Investors will closely watch ECB President Christine Lagarde’s press conference for guidance on the longer-term outlook. Any hawkish signals from policymakers could bolster the Euro against the Pound in the near term.
However, lingering political uncertainty in France could weigh on sentiment. S&P Global recently downgraded France’s sovereign credit rating, citing instability that may hinder government efforts to reduce fiscal deficits—posing a potential headwind for the Euro.
Soft UK Price Data Weighs on Sterling
Meanwhile, the British Pound remains under mild pressure as signs of easing inflation strengthen expectations that the Bank of England (BoE) could soon ease monetary conditions.
Data from the British Retail Consortium (BRC) on Tuesday showed that UK shop price inflation slowed to 1.0% year-on-year in October, down from 1.4% in September. The figures followed last week’s softer UK Consumer Price Index (CPI) report, further suggesting that inflationary pressures are subsiding.
Outlook
In the short term, EUR/GBP is likely to remain supported above 0.8750, with traders eyeing Thursday’s ECB announcement for directional cues. While steady policy is widely expected, any hint of policy divergence between the ECB and BoE could influence the pair’s next move.
