• EUR/GBP trades lower around 0.8660 as the Pound Sterling strengthens ahead of UK GDP data.
• The Euro remains supported by signs that the European Central Bank is nearing the end of its rate-cutting cycle.
• Comments from a Bank of England official fuel expectations of a gradual normalization of UK monetary policy.

EUR/GBP trades around 0.8660 on Wednesday at the time of writing, down 0.12% on the day, as the Pound Sterling (GBP) benefits from cautious investor positioning ahead of UK growth data.

The Euro (EUR) nonetheless retains some support amid a gradual easing of inflationary pressures in the Eurozone, reinforcing the view that the European Central Bank (ECB) may be approaching the end of its rate-cutting cycle. Eurozone headline inflation, released last week, slowed to 2% YoY in December, its lowest level in four months and in line with the ECB’s target, while core inflation eased to 2.3% YoY, slightly below market expectations. These figures support the scenario of a more stable monetary policy outlook over the medium term, limiting downside pressure on the single currency.

On the UK side, the Pound Sterling (GBP) outperforms its major peers ahead of the release of the November monthly Gross Domestic Product (GDP) data, scheduled for Thursday. The Office for National Statistics (ONS) is expected to report a 0.1% expansion in activity, following two consecutive monthly contractions of 0.1% in September and October. At the same time, Manufacturing Production is forecast to rise by 0.5% MoM, while Industrial Production is expected to remain broadly flat. Investors are closely monitoring these data to assess the resilience of the UK economy.

Pound Sterling sentiment is also supported by recent comments from Alan Taylor, a member of the Bank of England’s (BoE) Monetary Policy Committee (MPC). Speaking at a summit at the National University of Singapore, Taylor said he expects monetary policy to normalize toward neutral levels “sooner rather than later,” noting that inflation sustainably at target is likely to be achieved from mid-2026. These remarks are in line with the guidance delivered by the Bank of England at its December meeting, when policymakers indicated that monetary policy is set to follow a gradual downward path.