The EUR/GBP cross retreats toward the 0.8700 area during early European trading on Monday, losing momentum amid rising geopolitical tensions between Ukraine and Russia and a cautious market stance on the Bank of England’s policy outlook. Investors remain on the sidelines ahead of Germany’s preliminary Consumer Price Index data, due for release on Tuesday, which could provide fresh direction for the Euro.
Russia’s defence ministry has claimed that Ukraine has targeted Moscow with drone attacks on a daily basis since the start of 2026. Ukrainian officials have stated that such operations are intended to disrupt Russian military logistics and energy infrastructure, increase the economic cost of Moscow’s war effort, and respond to ongoing Russian missile and drone strikes in a conflict that began nearly four years ago.
Geopolitical risks weigh on the euro
The Euro area’s historical reliance on Russian oil and natural gas leaves the single currency particularly sensitive to renewed geopolitical stress. Heightened uncertainty surrounding the Ukraine–Russia conflict may therefore exert additional selling pressure on the Euro, favoring the Pound Sterling in the near term.
BoE easing outlook supports the pound
On the policy front, expectations that the Bank of England will pursue a gradual easing cycle in 2026 continue to underpin the GBP and act as a headwind for EUR/GBP. The BoE lowered its benchmark interest rate from 4.0% to 3.75% at its December meeting, marking the lowest level in almost three years. Money markets are now pricing in at least one additional rate cut in the first half of the year, with nearly a 50% probability of a second reduction before year-end, according to Reuters.
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