• EUR/GBP trades lower at the start of the week, hitting a more-than-two-month low.
• Rising geopolitical tensions between Ukraine and Russia weigh on sentiment around the Euro.
• The Pound Sterling remains supported by the Bank of England’s cautious approach to monetary easing.

EUR/GBP trades around 0.8690 on Monday at the time of writing, down 0.20% on the day, hitting its lowest level in more than two months. The cross loses ground as geopolitical tensions in Eastern Europe intensify, while the Pound Sterling (GBP) continues to find support.

The Euro (EUR) comes under increased pressure as uncertainty surrounding the Russia–Ukraine conflict escalates. Moscow claims its territory has been targeted by repeated drone attacks, while Kyiv says it aims to disrupt Russian military and energy infrastructure. This escalation revives concerns over Europe’s energy security, as the Eurozone was heavily dependent on Russian Oil and natural Gas imports in the past. Against this backdrop, investors adopt a more cautious stance toward the single currency.

The Pound Sterling, by contrast, benefits from relatively supportive expectations regarding monetary policy in the United Kingdom (UK). The Bank of England (BoE) has indicated that monetary policy will follow a gradual downward path after cutting its key interest rate by 25 basis points to 3.75% at its December meeting. Markets expect at least one further rate cut in the first half of the year, while anticipating that the pace of easing will remain measured.

Investors believe this cautious approach is justified by still-elevated inflation in the United Kingdom. Although headline Consumer Price Index (CPI) inflation eased to 3.2% in November from a peak of 3.8% in September, it remains well above the 2% target, encouraging the British central bank to proceed carefully.

On the Eurozone side, the Euro could find some support from the wait-and-see stance of the European Central Bank (ECB). The institution kept interest rates unchanged in December and signaled that they are likely to remain on hold for an extended period. ECB President Christine Lagarde stressed that heightened uncertainty makes it difficult to provide clear forward guidance on future policy decisions, contributing to limited visibility for the Euro against the Pound Sterling.