EUR/GBP. Analysis and Forecast

[Ben Graham]

The euro is showing moderate resilience amid easing inflationary pressure in the euro area, strengthening the case for the European Central Bank to conclude its rate-cutting cycle. According to data released last week, the eurozone's headline consumer price index slowed to 2% year on year in December—the lowest level in four months and in line with the ECB's target. Core inflation also declined to 2.3% year on year, coming in slightly below the market consensus forecast. These indicators support a scenario of monetary policy stabilization in the medium term, which limits downside pressure on the single currency.

The pound is outperforming its major peers ahead of the release of November gross domestic product (GDP) data, expected on Thursday. Forecasts suggest that the Office for National Statistics (ONS) will report a 0.1% increase in economic activity following two consecutive 0.1% contractions in September and October. Manufacturing output is also expected to rise by 0.5% month on month, while overall industrial production is likely to remain broadly unchanged. This data will be a key indicator of the resilience of the UK economy.

Positive sentiment toward the pound is further supported by comments from Alan Taylor of the Bank of England's Monetary Policy Committee, made at a summit at the National University of Singapore. Taylor noted that normalization of policy toward a neutral level may come sooner rather than later, as a sustained achievement of the inflation target is expected around mid-2026. These remarks are consistent with the Bank of England's December guidance on a gradual easing of monetary policy.

From a technical perspective, the pair is trading within a descending channel. The nearest support lies at 0.8664, below which the pair could hold around 0.8650 and near the 200-day SMA. Resistance is provided by the 9-day EMA; a break above it would accelerate the move toward the round level of 0.8700. However, as daily oscillators remain negative, it is still too early for bulls to talk about a sustained rise.

The table below shows the percentage change dynamics of the euro. The strongest gain of the euro is observed against the Canadian dollar.

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