The EUR/GBP pair is trading flat around 0.8785 in early European hours on Tuesday, with investors staying cautious ahead of the Eurozone’s preliminary Harmonized Index of Consumer Prices (HICP) release due later in the day.
UK fundamentals tilt dovish
Expectations for a December rate cut from the Bank of England (BoE) have strengthened following softer UK inflation, signs of cooling in the labor market, and November’s Autumn Budget. In the budget report, Chancellor Rachel Reeves confirmed that the government plans to raise taxes by £26 billion by the 2029–30 fiscal year to address the growing budget gap.
Market projections now see a strong probability of the BoE lowering rates to 3.75% this month, a scenario that could pressure the Pound Sterling (GBP) and provide upside support for the cross.
ECB remains cautious but steady
A cautious yet steady tone from the European Central Bank (ECB) continues to lend modest support to the Euro. President Christine Lagarde reiterated that borrowing costs are currently at the “right level,” while Governing Council member Joachim Nagel expressed confidence in the existing policy stance.
With the ECB preparing for its final meeting of the year, analysts broadly expect interest rates to remain unchanged for a fourth consecutive time.
Eurozone HICP data in focus
Tuesday’s flash HICP reading will be the key risk event for the EUR. Headline inflation is expected to rise 2.1% YoY in November, with core inflation projected to edge up to 2.5%. A softer-than-expected print could weigh on the Euro in the near term, potentially pushing EUR/GBP lower as markets reassess the region’s inflation trajectory.
