The EUR/GBP pair continues its upward momentum, climbing toward 0.8450 during early European trading on Tuesday. The Pound Sterling (GBP) weakens following mixed UK employment data and dovish Bank of England (BoE) expectations, while traders anticipate Germany’s ZEW Survey for January for further direction.

The UK’s latest labor market report, released by the Office for National Statistics, showed the ILO Unemployment Rate rose slightly to 4.4% for the three months ending in November, missing forecasts of 4.3%. Additionally, the Claimant Count Change for December increased by 0.7K, compared to expectations of 10.3K and a prior reading of -25.1K. The weaker-than-expected data undermined confidence in the GBP.

Further weighing on Sterling, UK Retail Sales recently posted an unexpected decline, fueling speculation that the BoE will adopt a dovish stance. Markets now widely anticipate a 25-bps rate cut at the BoE’s February meeting, with a total of over 75 bps of easing priced in for 2025, up from 65 bps prior to the data release.

On the other hand, the Euro faces mixed sentiment as market participants weigh expectations of significant rate cuts by the European Central Bank (ECB). UBS analysts project the ECB to reduce rates by at least 150 bps over the next year. While ECB policymakers have stressed a cautious approach to rate reductions, they acknowledged that further easing could be necessary due to softening inflationary pressures.

Trade Idea:
Buy EUR/GBP on a sustained break above 0.8450, targeting 0.8500, with a stop-loss at 0.8420. Monitor Germany’s ZEW Survey and BoE rhetoric for direction.