EUR/GBP falls below 0.8400 as continuing losing streak due to a potential ECB rate cut

• EUR/GBP depreciates amid the increased likelihood of the ECB delivering 25 basis points on Thursday.
• The Pound Sterling may depreciate as traders expect the BoE to reduce interest rates by 25 basis points in February.
• UK PM Starmer emphasized that economic growth is his top priority, highlighting signs that the economy is starting to recover.

EUR/GBP extends its losing streak for the fifth successive session, trading around 0.8380 during the early European hours on Wednesday. Further downside risks for the EUR/GBP cross seem possible as the Euro (EUR) could weaken due to the increased likelihood that the European Central Bank (ECB) will lower its Deposit Facility rate by 25 basis points (bps) to 2.75% on Thursday. This expectation stems from the sluggish economic outlook in the Eurozone and confidence that inflation will sustainably return to the ECB’s 2% target.

With a 25 bps rate cut already priced in, investors will closely monitor President Christine Lagarde’s press conference for insights on how potential tariffs from Trump might influence economic and monetary policy.

However, this downside of the EUR/GBP cross could be limited as the Pound Sterling (GBP) remains under pressure amid rising concerns over the risk of stagflation in the UK economy, driven by weakening labor demand and persistent inflation.

Traders are currently pricing in a 25 basis point (bps) rate cut in the Bank of England’s (BoE) first monetary policy decision of 2025 on February 6, which would bring borrowing rates down to 4.5% amid the sluggish economic outlook.

On Tuesday, UK Prime Minister Keir Starmer gave optimistic remarks on the economy in a Bloomberg interview. Starmer emphasized that the Labour government’s top priority is “growth” and noted that the economy is beginning to “turn around.” He also highlighted the strong trade ties between the United States (US) and the UK, stating that “we’ve got a huge amount of trade with the United States already, and the base is there for even better trading relations. We need to build on that.”