EUR\/GBP traded flat after two days of gains, near 0.8770 in Asian hours on Monday, holding above 0.8750. Markets are watching German Retail Sales figures for January due later in the day.<\/p>\n
The Euro found support from the European Central Bank\u2019s cautious policy stance, amid elevated consumer inflation expectations and possible wage-based price pressure. ECB President Christine Lagarde said Eurozone inflation is projected to stabilise at the 2% target over the medium term and that disinflation measures have been effective.<\/p>\n
Lagarde also said economic activity may be supported by rising labour income in a resilient jobs market. She referred to increased spending on defence, infrastructure, and digital technologies as factors that could support activity.<\/p>\n
The pair may also be influenced by Pound Sterling moves, as expectations grow for Bank of England rate cuts after weaker UK employment data and easing inflation pressures. Sterlings\u2019 tone was also affected by Labour losing the Gorton and Denton by-election, ahead of May elections in Scotland, Wales, and several English councils.<\/p>\n
Looking back at this view from early 2025, we can see the forecast for a stronger Euro against the Pound was largely correct. The expected policy divergence between a cautious European Central Bank and a more dovish Bank of England did materialize over the past year. This has pushed the EUR\/GBP cross from the 0.8770 area to its current level around 0.8950.<\/p>\n
The Bank of England initiated its first rate cut in August 2025 and followed with another in November, responding to UK inflation falling faster than projected to its current rate of 2.1%. Weaker employment figures throughout the second half of 2025, with the unemployment rate climbing to 4.5%, gave the BoE the justification it needed to act. The political instability following Labour’s poor performance in the May 2025 local elections also weighed on Sterling.<\/p>\n
Conversely, the ECB has held its main interest rate steady at 3.50% as Eurozone core inflation proved sticky, registering 2.8% in the latest figures for January 2026. President Lagarde\u2019s concerns about wage-driven price pressures last year were well-founded, forcing the central bank to maintain a restrictive stance. This interest rate differential has been the primary driver of the Euro’s strength.<\/p>\n
Given the pair is now trading at multi-month highs, we need to be cautious about chasing this trend further. The latest German retail sales data, released just this morning, showed a surprise month-over-month contraction of 1.2%, hinting that the ECB\u2019s tight policy might finally be impacting the bloc’s largest economy. This could be an early signal that the ECB’s hawkish resolve may soon be tested.<\/p>\n
For derivative traders, this suggests the upward momentum in EUR\/GBP may be nearing exhaustion. We should consider buying some out-of-the-money EUR\/GBP put options with May 2026 expiry dates to hedge against a potential reversal if the market begins to price in a more dovish ECB. The current low implied volatility makes this a relatively cheap way to protect against a pullback towards the 0.8800 support level.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" EUR\/GBP held near 0.8770 as traders awaited German Retail Sales, weighing ECB stance and BOE expectations.<\/p>\n","protected":false},"author":103,"featured_media":17031,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-50491","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/50491","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/103"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=50491"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/50491\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17031"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=50491"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=50491"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=50491"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}