• EUR/GBP weakens as the Pound Sterling strengthens on a cautious BoE policy outlook.
• The BoE is expected to ease gradually but sees limited room for further cuts near neutral rates.
• The Euro could find support as signals suggest the ECB’s rate-cutting cycle has ended.

EUR/GBP inches lower after registering gains in the previous session, trading around 0.8720 during the early European hours on Monday. The currency cross depreciates as the Pound Sterling (GBP) gains on a cautious tone surrounding the Bank of England’s (BoE) policy outlook.

BoE Governor Andrew Bailey signaled that interest rates are expected to ease further in a gradual manner, but cautioned that the scope for additional cuts is limited as rates approach their neutral level. Any moves beyond the latest cut are likely to be finely balanced and strongly driven by incoming data.

The BoE lowered the policy rate by 25 bpp to 3.75% in December, with a close 5–4 vote highlighting persistent inflation concerns. While inflation cooled to 3.2% in November, it remains well above the BoE’s 2% target. UK GDP expanded by 0.1% in the third quarter, meeting expectations, but the BoE projects flat growth in the final quarter.

However, the EUR/GBP cross could gain ground as the Euro (EUR) may receive support from signals that the European Central Bank (ECB) rate cut cycle has ended. Traders expect the European Central Bank (ECB) to hold interest rates steady for some time. The money markets have priced in a 25 bps interest rate cut by the ECB in February 2026, currently remaining below 10%.

ECB President Christine Lagarde noted that the central bank cannot provide forward guidance on future rate moves due to high uncertainty, emphasizing a data-dependent, meeting-by-meeting approach.