EUR/GBP. Analysis and Forecast

[Ben Graham]

Today, Tuesday, the EUR/GBP exchange rate is trading within the same range as yesterday. The euro is attempting to rise, but the pair's growth has stalled amid sterling's strengthening, supported by optimistic expectations regarding the Bank of England's future monetary policy actions. The British currency received support from recent comments by Bank of England Governor Andrew Bailey, who noted that the regulator will continue a gradual reduction of interest rates. At the same time, Bailey emphasized that the scope for further easing is limited, as current rates are close to the neutral level. He also added that subsequent decisions will be made with particular caution and will be based on incoming macroeconomic data.

In December, the Bank of England cut the base rate by 25 basis points to 3.75% following a narrow vote (five votes to four), reflecting the Monetary Policy Committee's ongoing concerns about inflation risks. Despite UK inflation slowing to 3.2% in November, the figure remains above the central bank's 2% target. At the same time, UK GDP grew by 0.1% in the third quarter, in line with forecasts, while the Bank of England expects zero growth in the final quarter of 2025.

As for the euro, downward pressure on EUR/GBP remains limited amid signals that the European Central Bank's rate-cutting cycle is likely approaching its end. At its most recent meeting in December, the ECB left rates unchanged, noting that their level is likely to remain stable in the coming months. ECB President Christine Lagarde emphasized that, amid uncertainty, the regulator is avoiding forward guidance on the future path of rates, adhering instead to a data-dependent, meeting-by-meeting approach. Market estimates suggest that the probability of a 25-basis-point ECB rate cut in February does not exceed 10%. Such expectations of stable monetary policy in the euro area may help prevent the euro from weakening more significantly in the short term.

Overall, the pound's position remains resilient, as investors expect the Bank of England to continue a smooth and measured easing cycle in 2026, refraining from sharp moves while inflation remains above target. In the coming days, EUR/GBP is likely to maintain sideways movement amid declining market activity ahead of the New Year holidays. The comparative table of percentage changes shows that today the euro is demonstrating the greatest strength against the New Zealand dollar.

From a technical perspective, prices have fallen below the 100-day simple moving average (SMA), confirming bullish weakness. Oscillators across all timeframes are in negative territory, pointing to a bearish outlook. However, during the holiday period prices are likely to remain in a sideways trend due to the lack of full market liquidity. The pair has found support at the 0.8705 level, with the main support at the round number of 0.870. Resistance is provided by the 100-day SMA around 0.872, above which the 9-day EMA near 0.873 will present the next obstacle.

The material has been provided by InstaForex Company - www.instaforex.com