EUR/GBP awaits Central Banks developments

European Central Bank likely to hold interest rates

Markets are awaiting today’s European Central Bank interest rate decision, which is expected to keep rates unchanged at 2.00%. Inflation remains close to the ECB’s target of 2%, with November’s YoY headline inflation coming in as expected at 2.1%, while core inflation (excluding energy and food) stood at 2.4%.

Looking at the longer-term outlook for interest rates, divisions remain within the Governing board. Some members argue that rate cuts should be considered due to the strength of the euro, which weighs on export competitiveness and contributes to lower inflation. Others believe that rate hikes should be considered, citing factors that could push inflation higher, including German fiscal stimulus. As a result, it would not be surprising if the ECB President refrains from providing any forward guidance for the monetary policy and instead keeps decisions firmly tied to incoming economic data.

The ECB will also release updated economic projections for European growth and inflation. Key downside risks to the economy include U.S. tariffs, whose effects are beginning to appear in European exports to the United States, as well as ongoing uncertainty surrounding Russia–Ukraine peace deal. The main positive factor remains German fiscal stimulus.

Bank of England likely to cut interest rates

U.K. inflation data for November, released yesterday, showed a notable decline in year-on-year inflation from 3.6% to 3.2%. This supports the case for those advocating interest rate cuts and increases the likelihood that the Bank of England Governor, who leans toward easing, will vote in favor of a 25-basis-point rate cut today, from 4.00% to 3.75%. Such a move would align U.K. interest rate policy with recent developments in the U.S., where the Federal Reserve cut rates by 25 basis points last week to a range of 4.00%–3.75%.

EUR/GBP – Technical Analysis

On November 14, the pair reached its highest level in several months at 0.8864 before retreating due to profit-taking. The price then started a downtrend, forming lower highs and lower lows. On December 9, price rebounded from the low end of the current trading zone located between 0.8720 and 0.8852 and may now be on course to test the high end of the zone.

A daily close above 0.8852 suggests a bullish comeback and could open the door for a move toward 0.8940. In this scenario, close attention should be paid to the resistance level at 0.8890.

Key levels to watch in the alternative scenario

A break below the bullish trendline originating from the September 15 low, combined with a daily close below 0.8720, would signal a strong bearish momentum and could encourage further downside, potentially pushing the pair toward 0.8595. In this case, the support level at 0.8640 should be closely monitored.

EUR/GBP – Daily Price Chart

Chart Source: ADSS Platform