EUR/GBP moves sideways as traders weigh Iran deal hopes

• EUR/GBP trades choppy as geopolitical headlines surrounding US-Iran tensions dominate market sentiment.
• Oil-driven inflation keeps the ECB-BoE interest rate path in focus.
• ECB-BoE monetary policy divergence keeps the EUR/GBP bias tilted to the upside.

EUR/GBP remains choppy on Wednesday as markets track Middle East developments, while cautious optimism prevails on expectations that the United States (US) and Iran could reach a deal through renewed negotiations. At the time of writing, the cross is trading around 0.8694, pausing a two-day losing streak with the Euro (EUR) modestly outperforming the British Pound (GBP).

Reports suggest a second round of peace talks could take place as early as this week, before the current two-week ceasefire expires. Meanwhile,  US President Donald Trump said in an interview with Fox Business that “the Iran war can be over very soon.”

This has helped ease fears of further escalation. However, the situation remains far from resolved, with tensions lingering around the Strait of Hormuz amid the ongoing US naval blockade. Separately, The Washington Post reported on Wednesday that the Pentagon is preparing to deploy thousands of additional troops to the Middle East in the coming days, as Washington steps up pressure on Iran to secure a deal.

Against this backdrop, EUR/GBP remains largely range-bound as traders reassess the monetary policy outlook in light of oil-driven inflation concerns. Elevated energy prices have prompted markets to price in the possibility of potential rate hikes from both the European Central Bank (ECB) and the Bank of England (BoE).

That said, the ECB appears to be in a relatively stronger position, with inflation pressures in the Eurozone seen as more contained compared to the UK. If a meaningful breakthrough in US-Iran negotiations leads to a sustained decline in Oil prices, it could ease pressure on central banks to tighten policy.

This, in turn, may revive expectations of policy easing from the BoE, while the ECB is likely to maintain its on-hold stance, consistent with its pre-conflict outlook.

This divergence in policy expectations could keep the broader bias in EUR/GBP tilted to the upside, even as near-term price action remains driven by geopolitical headlines.

On the data front, Eurozone Industrial Production rose by 0.4% MoM in February, beating expectations of 0.3% and rebounding from the previous contraction of -0.8%, signaling a modest recovery in manufacturing activity.

Looking ahead, central bank messaging remains in focus, with ECB and BoE officials due to speak later in the day. On Thursday, attention will turn to key data releases, including UK Gross Domestic Product (GDP) for February, along with Industrial and Manufacturing Production figures, as well as Eurozone inflation data.