Euro gains against Pound as BoE signals dovish shift

• Euro rebounds against Pound as dovish BoE stance weighs on Sterling.
• The BoE leaves Bank Rate at 4% in a close 5-4 split, with four members backing a 25-bps cut.
• Monetary Policy gap broadens as the BoE hints at cuts and the ECB stays in wait-and-see mode.

The Euro (EUR) edges higher against the British Pound (GBP) on Friday, snapping a two-day losing streak as the Bank of England’s (BoE) dovish policy stance weighs on Sterling. At the time of writing, EUR/GBP trades around 0.8808, up 0.20% on the day and on track to record its third consecutive weekly gain.

The BoE on Thursday kept its Bank Rate unchanged at 4.00%, as widely expected, but struck a softer tone that caught markets’ attention. The nine-member Monetary Policy Committee (MPC) voted 5-4 to hold, with four members supporting an immediate rate cut, underscoring a growing dovish bias within the central bank.

Governor Andrew Bailey acknowledged that inflation is easing faster than anticipated and suggested policy “will not need to remain this restrictive for too long,” hinting at potential rate reductions in the coming months.

The focus now shifts to the UK Budget on November 26, which could further influence Sterling’s direction. Chancellor Rachel Reeves is expected to deliver a fiscally cautious plan as the government faces a £20-30 billion shortfall. Analysts anticipate tax rises and limited spending, a mix that could slow growth and add to the case for BoE rate cuts.

Meanwhile, the European Central Bank (ECB) left its deposit rate unchanged at 2.00% on October 30 and maintained its data-dependent, meeting-by-meeting approach. The ECB noted that price pressure has moderated, with core inflation easing and the Eurozone economy showing modest but stable expansion.

President Christine Lagarde said the policy stance is “in a good place” but emphasized that this position is not fixed, leaving room for adjustment if inflation or growth deviates from expectations.

The growing monetary policy divergence between the ECB and BoE remains a key driver for EUR/GBP. While both central banks are holding rates steady for now, the BoE’s split vote and Bailey’s dovish remarks point toward an earlier pivot to easing, contrasting with the ECB’s more balanced stance.