EUR/GBP softens below 0.8350 as traders brace for BoE rate decision

• EUR/GBP weakens to around 0.8320 in Thursday’s early European session. 
• Concerns about Trump’s trade tariffs undermine the shared currency. 
• The BoE is widely expected to cut its key interest rate on Thursday. 

The EUR/GBP cross remains on the defensive around 0.8320 during the early European session on Thursday. The concerns that US President Donald Trump would slap tariffs on goods from the European Union weigh on the Euro (EUR) against the Pound Sterling (GBP). All eyes will be on the Bank of England (BoE) interest rate decision on Thursday. 

Following his announcement of import tariffs on Canada, Mexico, and China on Monday, Donald Trump promised to impose the EU next. The EU intends to retaliate against the US if Trump follows through on his threats to slap tariffs on the bloc. This, in turn, exerts some selling pressure on the shared currency. 

On the GBP front, investors expect the BoE to reduce borrowing costs by a quarter point to 4.50% at its February meeting on Thursday. “The BoE is likely to justify the move, even though inflation remains above (bank) target due to a sluggish economy and a softening in the labor market in recent months,” noted Kathleen Brooks, research director at XTB trading group.
 
Market players will closely monitor how the UK central bank assesses any potential inflationary impact from the fiscal reforms announced by the government in October 2024, which include a significant hike in the tax businesses face on payrolls. Sticky inflation might limit BoE Governor Andrew Bailey’s ability to cut rates much further, supporting the GBP.