The EUR\/GBP cross is steady near 0.8735 in the European session on Friday. Speculation around UK tax hikes and a potential BoE rate cut might pressurise the Pound Sterling. Further information is expected from the Eurozone’s third estimate of Q3 GDP growth.<\/p>\n
The UK Autumn November budget and signs of economic weakness support expectations of a December rate cut by BoE. The UK central bank is anticipated to lower interest rates by 25 bps to 3.75% on December 18 due to the cooling job market. This could weaken the GBP, giving the EUR\/GBP a boost.<\/p>\n
Meanwhile, the European Central Bank (ECB) kept key rates unchanged in October at a 2.00% deposit rate. The next monetary policy meeting is set for December 18. Market projections indicate rates are likely to remain unchanged, and expectations for cuts in 2026 have reduced.<\/p>\n
High expectations that the ECB will maintain rates could support the EUR against the GBP short-term. Analysts predict the deposit rate will remain at 2.0% unless there’s a notable drop in inflation. Alternatively, a 25 bps rate hike is possible by end of 2026 due to inflationary pressures.<\/p>\n
We are looking at a clear split between the Bank of England and the European Central Bank. While the EUR\/GBP pair is currently quiet around 0.8735, the upcoming central bank meetings on December 18 are the main event on our radar. This divergence in policy is setting up a potentially significant move in the coming weeks.<\/p>\n
The market is heavily leaning towards a BoE rate cut this month, a move that would weaken the Pound. Recent data supports this, with the latest Office for National Statistics release showing UK inflation fell to 2.1% in November, bringing it much closer to the BoE’s target. This gives the central bank cover to ease policy and support a flagging economy.<\/p>\n
On the other side of the trade, the Euro is finding support as the ECB is expected to hold interest rates firm. Eurostat’s recent flash estimate for November showed inflation remains sticky at 2.8%, well above the ECB’s 2% goal. This makes it very unlikely for the ECB to consider cutting rates anytime soon.<\/p>\n
For derivative traders, this points towards strategies that benefit from a rise in EUR\/GBP. Buying call options with an expiry after the December 18 meetings could be a way to capture a potential upward move while defining our risk. Implied volatility may be elevated given the event risk, but the directional bias appears strong.<\/p>\n
We have seen similar scenarios play out in the past when major central banks move in opposite directions. Looking back at the policy divergence between the US Federal Reserve and the ECB in the 2022-2023 period, we saw it create a powerful, multi-month trend in EUR\/USD. This historical precedent suggests the current setup in EUR\/GBP could have lasting momentum if the central banks act as expected.<\/p>\n
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