EUR/GBP trades slightly lower near 0.8715 on Monday, giving back part of the previous session’s gains as the Pound Sterling maintains a relatively steady tone. The cross appears to be consolidating, with Sterling finding support from a measured but firm monetary policy message coming out of the Bank of England.

Recent remarks from BoE Governor Andrew Bailey have helped anchor the Pound. Bailey signaled that interest rates are likely to move lower over time, but stressed that any further easing would be gradual. He also noted that as rates approach a neutral level, the room for additional cuts becomes more limited. This has reinforced expectations that future policy decisions will be finely balanced and heavily dependent on incoming data rather than a pre-set easing path.

The Bank of England reduced its benchmark rate by 25 basis points to 3.75% in December, following a narrow five-to-four vote. The close split highlighted ongoing concerns around inflation, which, despite easing to 3.2% in November, remains well above the BoE’s 2% target. Economic growth in the UK remains subdued, with GDP expanding by just 0.1% in the third quarter. The central bank has also warned that growth is likely to be flat in the final quarter of the year, reinforcing the case for caution rather than aggressive easing.

On the Euro side, downside pressure on the pair is limited by expectations that the European Central Bank may be nearing the end of its rate-cut cycle. The ECB left rates unchanged earlier this month and signaled a preference to stay on hold amid ongoing uncertainty. President Christine Lagarde has reiterated that policy decisions will remain data-driven, with no firm forward guidance.

Money markets are currently pricing in less than a 10% chance of an ECB rate cut in February, suggesting a relatively stable outlook for Eurozone policy. This should help cap sharp declines in the Euro, even as Sterling remains supported.

With year-end liquidity thinning, EUR/GBP is likely to remain range-bound in the near term as both currencies find support from cautious central bank guidance.

Trade Idea:
Sell EUR/GBP on rebounds toward 0.8750, targeting 0.8650, with a stop above 0.8790, as BoE caution supports Sterling while ECB policy expectations limit upside.