• EUR/GBP extends gains as Sterling weakens on political uncertainty.
• Soft UK consumer confidence and dovish BoE expectations weigh on Sterling.
• German inflation cools, but the Euro remains supported amid a steady ECB outlook.

The Euro (EUR) ticks higher against the British Pound (GBP) on Friday, with Sterling under broad pressure as renewed political uncertainty in the United Kingdom (UK) dampens investor sentiment. At the time of writing, EUR/GBP is trading around 0.8771, hovering near its highest level since December 19.

The UK Labour Party lost the parliamentary by-election in the Greater Manchester seat of Gorton and Denton, a constituency it had represented for nearly 100 years.

The unexpected defeat has increased scrutiny on Prime Minister Keir Starmer’s leadership and has fueled internal discussions within the Labour Party about the possibility of a leadership challenge ahead of the next general election.

On the data front, the latest GfK Consumer Confidence index fell to -19 in February, down from -16 in January, missing the forecast of -15.

In the Eurozone, softer German inflation data did little to temper the bullish tone in EUR/GBP. Preliminary data showed Germany’s Consumer Price Index (CPI) rose 0.2% MoM in February, below the 0.5% forecast, though slightly higher than the previous 0.1% increase. On an annual basis, CPI eased to 1.9% YoY, down from 2.1%, missing expectations of 2%.

Meanwhile, the preliminary Harmonized Index of Consumer Prices (HICP) climbed 0.4% MoM, undershooting the 0.5% forecast but rebounding from -0.1% previously. The annual HICP rate eased to 2.0% from 2.1%.

On the interest rate outlook, growing expectations of a more dovish outlook from the Bank of England (BoE) are also weighing on the Pound. Markets are increasingly pricing in the possibility of a rate cut at the March meeting, amid cooling inflation and deteriorating labor market conditions.

In contrast, the European Central Bank is widely expected to keep interest rates unchanged through the rest of 2026, as inflation stabilizes below the 2% target.