• EUR/GBP stabilizes around 0.8630, close to its lowest level in five months.
• Investors await monetary policy decisions from the European and UK central banks on Thursday.
• Preliminary inflation data in the Eurozone and the UK shape market expectations.

EUR/GBP trades with caution around 0.8630 on Tuesday at the time of writing, hovering near its five-month low. The pair lacks direction as investors limit positioning ahead of the monetary policy announcements from the European Central Bank (ECB) and the Bank of England (BoE), both scheduled for Thursday.

Markets widely expect both institutions to keep interest rates unchanged. On the European side, the ECB is seen maintaining its Deposit Facility Rate at 2%, as inflation in the Eurozone remains broadly close to the central bank’s 2% target. This view is reinforced by the expected slowdown in headline inflation, largely driven by energy base effects, which the ECB has already described as temporary.

Ahead of the ECB decision, attention turns to Wednesday’s release of the preliminary Eurozone Harmonized Index of Consumer Prices (HICP) data for January. Headline inflation is expected to rise by 1.7% YoY, down from 1.9% in December, while core inflation, which excludes volatile components, is forecasted to remain steady at 2.3%. These figures are likely to support the ECB’s wait-and-see approach, with no clear signal of an imminent policy shift.

In the United Kingdom (UK), the Bank of England is also expected to leave its policy rate unchanged at 3.75%. Policymakers believe the impact of the 25-basis-point rate cut delivered in December has yet to fully filter through to the real economy. At that meeting, the central bank reiterated that monetary policy remains on a gradual easing path.

However, the recent acceleration in UK inflation complicates the outlook for further near-term easing. In December, the UK Consumer Price Index (CPI) rose by 3.4% YoY, up from 3.2% in November, ending a period of moderation seen in previous months. This renewed price pressure could encourage BoE officials to remain cautious and avoid delivering back-to-back rate cuts.

Against this backdrop, EUR/GBP remains anchored near recent lows, as traders await clearer signals on the respective monetary policy paths in the Eurozone and the United Kingdom.