• EUR/GBP trades near the bottom of its multi-month range as the Euro loses ground.
• Falling Oil prices ease inflation concerns and dampen expectations for aggressive ECB tightening.
• The Pound retains support from higher UK interest rates despite political uncertainty.

EUR/GBP trades on the back foot around 0.8620 on Thursday, hovering near the lower end of the multi-month range that has held since July 2025.

The Euro (EUR) underperforms most of its major peers as traders reassess the European Central Bank's (ECB) monetary policy outlook after Oil prices retreated to pre-US-Iran war levels, easing inflation concerns.

Markets are increasingly questioning the need for additional rate hikes after the ECB raised rates by 25 basis points (bps) to 2.25% earlier this month and reiterated that future policy moves will remain data-dependent.

ECB Executive Board member Isabel Schnabel said on Wednesday, "From today's view, more hiking is needed to get to 2%. ECB rates are not restrictive yet." She added, "War, inflation, and growth will set the timing and size of any future hikes.

Traders have scaled back expectations for aggressive ECB rate hikes in the wake of lower Oil prices and now see only one additional increase later this year.

Expectations of a less hawkish ECB and the still-wide interest-rate differential with the Bank of England (BoE), which kept interest rates unchanged at 3.75% at its latest monetary policy meeting, suggest the British Pound (GBP) could retain the upper hand over the Euro in the near term.

However, traders have also pared back expectations for Bank of England (BoE) rate hikes later this year, moving away from the more hawkish outlook seen during the US-Iran war.

If inflation shows signs of returning to the BoE's target, the BoE could shift to an easing bias amid sluggish economic growth, weighing on the Pound. In the meantime, political uncertainty following UK Prime Minister Keir Starmer's resignation could trigger volatility in Sterling.