EUR/GBP Holds Firm as ECB Flags Currency Concerns

Key Moments

EUR/GBP is trading flat near 0.8660 in thin liquidity after a prior session pullback.
ECB officials highlighted that sustained Euro appreciation could influence future rate decisions.
Markets are now focused on upcoming Eurozone GDP and labor market data, as well as BoE and ECB meetings in early February.

Euro-Pound Pair Stabilizes After Recent Retreat

The Euro (EUR) is holding its ground against the British Pound (GBP) on Thursday, consolidating after coming under pressure in the previous session amid growing speculation that the European Central Bank (ECB) could move to cut interest rates later this year. At the time of writing, EUR/GBP is trading flat around the 0.8660 level in relatively thin market conditions.

ECB Concerned About Euro Strength and Policy Implications

Expectations for potential ECB easing have been reinforced by the Euro’s recent gains against the US Dollar (USD), drawing increased attention from policymakers. Austrian central bank Governor Martin Kocher warned that a prolonged period of Euro strength could eventually require a policy response. “If the euro appreciates further and further, at some stage this might create, of course, a certain necessity to react in terms of monetary policy,” Kocher noted, adding that this would not be about targeting the exchange rate itself, “but because the exchange rate translates into less inflation, and then this is of course a monetary policy issue.”

Echoing this stance, ECB Governing Council member François Villeroy de Galhau stated that the central bank is “closely monitoring this appreciation of the euro and its possible consequences in terms of lower inflation,” and emphasized that it is “one of the factors that will guide our monetary policy and our decisions on interest rates over the coming months.”

Rate-Cut Probabilities Edge Higher, Policy Seen on Hold Near Term

Following these remarks, Overnight Index Swaps reflected a modest increase in expectations for ECB easing. Markets are now pricing in about a 26% probability of a rate cut by the September meeting, compared with roughly 16% prior to the latest comments. Despite this shift, the ECB is still broadly anticipated to leave policy unchanged at its next meeting on February 4-5.

Event / Metric	Latest Detail
EUR/GBP level	Flat around 0.8660
Implied rate-cut probability by September	About 26% (up from around 16%)
Next ECB meeting	February 4-5 (policy expected to remain unchanged)

Eurozone Sentiment Data Provides Modest Support

On the macroeconomic front, the Euro has drawn some support from firmer Eurozone sentiment indicators. The Business Climate indicator improved to -0.41 in January from -0.56 in December. The Economic Sentiment Indicator climbed to 99.4, surpassing expectations and advancing from 97.2, while Consumer Confidence remained unchanged at -12.4, matching forecasts.

Eurozone Indicator	January	December / Prior
Business Climate	-0.41	-0.56
Economic Sentiment Indicator	99.4	97.2
Consumer Confidence	-12.4	-12.4 (unchanged)

UK Outlook: BoE Meeting in Focus

In the United Kingdom, investor caution persists ahead of the upcoming Bank of England (BoE) policy decision scheduled for February 5. The BoE is widely expected to leave interest rates unchanged at 3.75% following a run of inflation data that came in firmer than anticipated.

Data Watch: Eurozone GDP and Labor Market Ahead

Looking forward, market attention in the Eurozone will shift to Friday’s preliminary fourth-quarter GDP release and the latest Unemployment Rate data. These figures are likely to play an important role in shaping expectations for the ECB’s policy path and could influence the next leg in EUR/GBP price action.