EUR/GBP declines as BoE cautious tone supports Pound, ECB limits downside

• EUR/GBP retreats around 0.8725 early Wednesday in the European session, down 0.10% on the day
• The Bank of England’s cautious tone after its rate cut strengthens the British currency
• Limited expectations of European Central Bank rate cuts in 2026 could help limit the downside

EUR/GBP trades in negative territory around 0.8725 on Wednesday at the time of writing, extending a sequence of declines that began earlier in the week. The pair remains under pressure as the Pound Sterling (GBP) benefits from the Bank of England’s (BoE) relatively hawkish communication. At the same time, the Euro (EUR) limits the downside from the perception that the European Central Bank’s (ECB) easing cycle is approaching its end.

The Pound Sterling appreciates after the BoE delivered a widely expected 25-basis-point cut to its benchmark interest rate, bringing it to 3.75% at its latest meeting. This marks the first reduction since last summer, but the overall message from policymakers is seen as cautious. BoE Governor Andrew Bailey noted that rates are on a gradual downward path, while warning that each additional cut would become a more delicate decision due to still-persistent inflation. This guidance reinforces the view that the BoE is not embarking on an aggressive easing cycle.

Market expectations broadly align with this assessment. According to Reuters, investors believe the Bank of England will deliver at least one further rate cut in the first half of next year, with nearly a 50% chance of a second move before year-end. This outlook for a slow and measured easing path supports the Pound Sterling and acts as a headwind for EUR/GBP in the near term.

On the Eurozone side, the European Central Bank maintains a more wait-and-see stance. The ECB kept its three key interest rates unchanged at its latest meeting, marking the fourth consecutive time it has held them steady. ECB President Christine Lagarde said the institution is in a “good position” and stressed that all options remain on the table. Money markets currently assign less than a 10% chance of an ECB rate cut as early as February 2026, suggesting that the easing cycle may be close to completion.

This relative divergence between a cautious but already easing Bank of England and an ECB that remains on hold helps to contain price action in the cross. With trading volumes thinning ahead of the year-end holiday period, EUR/GBP is likely to trade more calmly, with downside pressure limited as long as monetary policy expectations remain broadly unchanged.