EUR/GBP holds steady as markets await German inflation data

• EUR/GBP holds flat as investors wait for a macroeconomic catalyst from the Eurozone.
• The Pound Sterling remains supported by expectations of a very gradual monetary easing cycle from the Bank of England in 2026.
• Investors turn their focus to German inflation data, which could shape expectations for European monetary policy.

EUR/GBP trades around 0.8660 on Tuesday at the time of writing, virtually unchanged on the day, as market participants adopt a cautious stance ahead of the release of preliminary inflation figures from Germany.

The Pound Sterling (GBP) continues to draw support from the messaging delivered by the Bank of England (BoE), which reiterated at its latest meeting that monetary easing is likely to remain gradual. After cutting its key interest rate by 25 basis points to 3.75% in December, the central bank stressed that future policy decisions will remain closely tied to inflation dynamics, which are still above the 2% target.

According to market expectations cited by Reuters, investors are pricing in at least one rate cut in the first half of the year, with nearly a 50% chance of a second reduction before year-end, a scenario that nevertheless limits the downside potential for the GBP.

On the Euro (EUR) side, the overall tone remains more fragile. Persistent geopolitical tensions between Russia and Ukraine continue to weigh on sentiment, at a time when the Eurozone remains structurally exposed to energy-related risks. In addition, recent macroeconomic data from the region point to a moderate slowdown in activity. The Eurozone HCOB Services Purchasing Managers Index (PMI) was revised lower to 52.4 in December, while the Composite PMI stood at 51.5, confirming a loss of momentum toward the end of the year.

Market attention now turns to the release of Germany’s Consumer Price Index (CPI) data. Inflation is expected to rise by 0.2% on a monthly basis in the national measure, while the Harmonized Index of Consumer Prices (HICP) is forecast to increase by 0.4% over the same period. A stronger-than-expected reading could provide short-term support to the Euro by fuelling speculation that the European Central Bank (ECB) may maintain a less accommodative stance, although the broader backdrop of subdued growth continues to argue for caution.

Against this background, EUR/GBP remains locked in a consolidation phase, with investors awaiting clearer macroeconomic signals before taking more decisive positions on the cross.