EUR/GBP breaks below 0.8450 due to rising expectations of an ECB rate cut later this week

Source Fxstreet
  • EUR/GBP depreciates as recent eurozone inflation data have solidified expectations of an ECB rate cut at Thursday’s meeting.
  • ECB Executive Board member Piero Cipollone warned of "a real risk that ECB's stance could become too restrictive.
  • The Pound Sterling may remain steady as investors await Tuesday’s UK labor data for the quarter ending in July.

EUR/GBP retraces its recent gains from its previous session, trading around 0.8440 during the European hours on Monday. The Euro faces challenges as recent eurozone inflation data have solidified expectations of a rate cut by the European Central Bank (ECB) at upcoming Thursday's policy meeting.

With headline inflation nearing 2% and long-term inflation forecasts holding steady around the same level, the ECB has sufficient justification to ease its monetary policy stance further. Additionally, last week's mixed Gross Domestic Product (GDP) data from the Eurozone has reinforced expectations of a potential rate cut by the ECB.

The slowdown in growth is fueling concerns that excessively high interest rates may be stifling economic expansion, echoing remarks made by ECB Executive Board member Piero Cipollone. Cipollone warned of "a real risk that ECB's stance could become too restrictive," further highlighting the potential impact of the current monetary policy on growth.

The Pound Sterling (GBP) may remain steady as investors await the United Kingdom's (UK) employment data for the quarter ending in July, set to be released on Tuesday. This labor market report could shape market expectations regarding the Bank of England's interest rate decisions for the rest of the year.

Estimates suggest the ILO Unemployment Rate may dip slightly to 4.1% from the previous 4.2%. Meanwhile, Average Earnings, including bonuses, are projected to ease to 4.1%, down from the prior 4.5% figure. Slower wage growth could heighten expectations for further interest rate cuts by the Bank of England, as it would indicate a potential decline in inflation within the services sector.

Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
placeholder
Markets in 2026: Will gold, Bitcoin, and the U.S. dollar make history again? — These are how leading institutions thinkAfter a turbulent 2025, what lies ahead for commodities, forex, and cryptocurrency markets in 2026?
Author  Insights
Dec 25, 2025
After a turbulent 2025, what lies ahead for commodities, forex, and cryptocurrency markets in 2026?
placeholder
ECB Policy Outlook for 2026: What It Could Mean for the Euro’s Next MoveWith the ECB likely holding rates steady at 2.15% and the Fed potentially extending cuts into 2026, EUR/USD may test 1.20 if Eurozone growth proves resilient, but weaker growth and an ECB pivot could pull the pair back toward 1.13 and potentially 1.10.
Author  Mitrade
Dec 26, 2025
With the ECB likely holding rates steady at 2.15% and the Fed potentially extending cuts into 2026, EUR/USD may test 1.20 if Eurozone growth proves resilient, but weaker growth and an ECB pivot could pull the pair back toward 1.13 and potentially 1.10.
placeholder
Gold Price Forecast: XAU/USD climbs to near $4,350 on Fed rate cut bets, geopolitical risks Gold price (XAU/USD) rises to near $4,345 during the early Asian session on Friday. Gold finished 2025 with a significant rally, achieving an annual gain of around 65%, its biggest annual gain since 1979.
Author  FXStreet
Jan 02, Fri
Gold price (XAU/USD) rises to near $4,345 during the early Asian session on Friday. Gold finished 2025 with a significant rally, achieving an annual gain of around 65%, its biggest annual gain since 1979.
placeholder
EUR/USD Price Forecast: Keeps bullish vibe, first upside barrier emerges above 1.1800The EUR/USD pair trades in positive territory around 1.1755 during the early European trading hours on Friday.
Author  FXStreet
Jan 02, Fri
The EUR/USD pair trades in positive territory around 1.1755 during the early European trading hours on Friday.
placeholder
Ethereum Price Forecast: Accumulation addresses post record inflows in December despite high selling pressureEthereum (ETH) accumulation addresses recorded their highest monthly inflow in December 2025 as the year came to a close. Despite the weak market momentum following the holidays, these wallets doubled down on their buying pressure, adding 3.62 million ETH to their cumulative balance.
Author  FXStreet
9 hours ago
Ethereum (ETH) accumulation addresses recorded their highest monthly inflow in December 2025 as the year came to a close. Despite the weak market momentum following the holidays, these wallets doubled down on their buying pressure, adding 3.62 million ETH to their cumulative balance.
Related Instrument
goTop
quote