EUR/GBP holds gains as UK data fuels BoE cut bets

• Euro holds modest gains against the Pound amid growing BoE easing expectations.
• Investors price in a March BoE rate cut and further easing this year.
• Focus shifts to UK Retail Sales and flash PMIs from the UK and Eurozone.

The Euro (EUR) holds firms against the British Pound (GBP) on Thursday as growing expectations of Bank of England (BoE) interest rate cuts weigh on the Pound. At the time of writing, EUR/GBP is trading around 0.8737, easing slightly after approaching the 0.8750 level.

Data released earlier this week reinforced expectations that the BoE could cut interest rates sooner than previously anticipated. The Consumer Price Index (CPI) fell 0.5% MoM in January, reversing December’s 0.4% increase. On an annual basis, inflation slowed to 3.0% from 3.4%. Meanwhile, Core CPI eased to 3.1% YoY, down from 3.2% in December.

Labour market data pointed to cooling momentum, with Employment Change easing to 52K in the three months to December from 82K previously. The ILO Unemployment Rate climbed to 5.2%, hitting its highest level since early 2021.

BoE policymaker Catherine Mann struck a cautiously optimistic tone earlier in the day, describing the January inflation figures as “good numbers” from both a headline and core perspective. She added that inflation is likely to return to the 2% target within the next three to four months.

Markets now expect the BoE to resume easing as soon as its March meeting, with nearly two additional rate cuts priced in later this year.

Elsewhere, uncertainty in the Eurozone briefly rose on Wednesday after reports suggested that European Central Bank (ECB) President Christine Lagarde could step down before the end of her term in October 2027.

However, concerns eased on Thursday after Reuters reported that Lagarde told colleagues she remains focused on her role and would inform them first if she were planning to step down.

Analysts note that a potential leadership transition is unlikely to materially alter the ECB’s steady monetary policy stance. Markets broadly expect the central bank to keep rates on hold through 2026, as inflation continues to stabilise near the 2% target.

Attention now turns to Friday’s data releases. The United Kingdom will publish Retail Sales figures, alongside preliminary Purchasing Managers’ Index (PMI) readings from both the UK and the Eurozone.