EUR/GBP stayed under 0.8750, trading near 0.8735 in early European hours on Wednesday. The Pound rose slightly after the UK CPI inflation release, and attention now turns to UK January Retail Sales and the Eurozone flash PMI on Friday.
UK Office for National Statistics data showed headline CPI rose 3.0% year on year in January, down from 3.4% in December. This matched forecasts of 3.0%, while core CPI rose 3.1% year on year versus 3.2% previously, also in line with expectations.
Uk Cpi Details
Monthly UK CPI fell -0.5% in January after a 0.4% rise in December. This matched the expected -0.5%, and the Pound firmed soon after the figures.
For the euro, markets expect the European Central Bank to keep its benchmark rate unchanged in 2026, before possible rises next year. Friday’s preliminary PMI readings for the Eurozone and Germany may guide the next move in EUR/GBP.
With UK inflation easing to 3.0%, the Pound Sterling is finding some footing against the Euro. This continues the disinflationary trend we watched develop through most of 2025, which saw the headline rate fall from over 4%. As EUR/GBP holds below the 0.8750 level, the market is trying to decide if this dip is temporary or the start of a new trend.
For derivative traders, this uncertainty is an opportunity to focus on volatility rather than pure direction. One-month implied volatility for EUR/GBP is currently around 5.8%, indicating that the market anticipates price swings around key economic data releases. We believe strategies like buying straddles or strangles could be effective to capitalize on a significant move after Friday’s UK retail sales and Eurozone PMI data.
Policy Divergence Outlook
The main theme remains the policy divergence between the Bank of England and the European Central Bank. The ECB appears content to hold rates steady for the rest of 2026, whereas this softer inflation print gives the BoE more options. This situation feels similar to the dynamic we saw in early 2024, when investors constantly repriced BoE rate cut odds based on each new piece of data.
We are now looking to Friday’s data to provide the next catalyst for the pair. Stronger-than-expected Eurozone PMI figures could easily push EUR/GBP back toward the 0.8800 resistance level. On the other hand, a poor UK retail sales number might confirm underlying economic weakness and send the cross lower.
