EUR/GBP traded in a narrow range near 0.8710 on Wednesday. Sterling held up after UK data, while broad US Dollar weakness shaped wider FX moves.
UK ONS figures showed monthly GDP rose 0.1% in December, matching forecasts. This followed 0.2% growth in November, revised down from 0.3%.
Uk Growth Data And Rate Cut Bets
Preliminary data showed Q4 GDP growth of 0.1% QoQ, below the 0.2% forecast and the same as the prior quarter. Annual growth eased to 1.0% in Q4 from 1.2%, and was below expectations.
The figures increased market focus on the Bank of England outlook. Markets have priced in the chance of an interest-rate cut as early as March.
Attention turns to Eurozone preliminary GDP on Friday, with forecasts for 0.3% QoQ in Q4, unchanged from the prior reading. Annual GDP is expected at 1.3% YoY, down from 1.4%.
A Reuters poll from 9–12 February found 66 of 74 economists expect the ECB deposit rate to stay at 2.00% through 2026. No change is expected before 2027.
Monetary Policy Divergence In Focus
The key theme for us is the growing split between the Bank of England and the European Central Bank. While the market is currently quiet around 0.8710, this period of low volatility could be a good time to position for a move. This divergence in monetary policy is the most significant driver for the EUR/GBP pair in the coming weeks.
UK economic data continues to point towards a slowdown, reinforcing our view that the Bank of England will cut rates soon. The latest inflation figures for January 2026 showed a drop to 2.1%, below the BoE’s target and strengthening the case for a March cut. Consequently, futures markets are now pricing in a 75% probability of a 25-basis-point reduction next month.
In contrast, the Eurozone is showing more resilience, supporting the ECB’s decision to hold rates steady at 2.00%. Recent German industrial production numbers for December 2025 actually beat expectations, growing by 0.5%, suggesting the bloc’s economic engine is not stalling. This stability makes the Euro attractive relative to a weakening Pound.
We saw a similar divergence back in 2024 when the ECB paused its hiking cycle while the BoE signaled one more increase. That period saw EUR/GBP drift lower, showing how markets react directly to these policy signals. The current situation suggests the opposite trend could now take hold, favoring the Euro.
Considering this outlook, buying EUR/GBP call options looks like a sound strategy to profit from a potential upward move. An April expiry with a strike price around 0.8800 offers exposure to the expected trend while capping downside risk. This approach benefits from both a rising spot price and any pickup in market volatility.
The main risk is that the upcoming Eurozone GDP data on Friday disappoints expectations, which could weaken the Euro temporarily. We should also watch for any hawkish commentary from BoE officials that might push back against the market’s rate cut expectations. However, given the weak UK data from the end of 2025, any GBP strength is likely to be short-lived.
