EUR/GBP Flat as Markets Await BoE and ECB Decisions

Written by Sandra Leggero

Sandra Leggero has a background in financial markets, having spent more than 9 years in commodities trading for several European and Asian companies. She holds a degree in Economics from the University of Pavia and specializes in emerging markets.

, | Updated: February 2, 2026

Key Moments

EUR/GBP trades near 0.8660, with minimal movement as markets await Thursday’s Bank of England and European Central Bank decisions.
The BoE recently cut the Bank Rate by 25 bps to 3.75%, while UK CPI remains above target with headline inflation at 3.4% and core at 3.2%.
The ECB has kept key rates unchanged for four straight meetings, with policymakers monitoring the Euro’s strength against the US Dollar as a potential drag on growth and inflation.

EUR/GBP Holds in Tight Range Ahead of Dual Central Bank Decisions

The Euro (EUR) is trading broadly sideways against the British Pound (GBP) at the start of the week, as market participants avoid committing to strong positions before Thursday’s monetary policy announcements from the Bank of England (BoE) and the European Central Bank (ECB). At the time of writing, EUR/GBP is quoted around 0.8660, showing little change on the session.

Both central banks are scheduled to deliver their latest policy decisions on Thursday, and investors widely anticipate that interest rates will be left unchanged at current levels.

BoE: Recent Rate Cut Meets Persistent Inflation Pressures

At its most recent meeting, the BoE reduced the Bank Rate by 25 basis points to 3.75%. Policymakers emphasized that any additional easing in the future would depend on how the inflation outlook develops, signaling that borrowing costs are expected to decline gradually over time, while also noting that upcoming decisions are becoming a “closer call”.

Recent inflation figures continue to justify the central bank’s guarded stance. Headline Consumer Price Index (CPI) rose 0.4% month-on-month, matching forecasts, after a 0.2% drop in November. On a year-on-year basis, headline CPI picked up to 3.4% from 3.2%. Core CPI remained unchanged at 3.2%. These readings keep inflation clearly above the BoE’s 2% target.

ECB: Steady Policy and Euro Strength Under Scrutiny

On the Euro side of the cross, the ECB has maintained a steady policy posture. At its previous meeting, the central bank left borrowing costs unchanged for a fourth consecutive time. The Deposit Facility rate was held at 2.00%, the Main Refinancing Operations rate at 2.15%, and the Marginal Lending Facility rate at 2.40%.

The Governing Council reaffirmed its objective of bringing inflation back to the 2% target over the medium term and reiterated that rate decisions will continue to be taken on a meeting-by-meeting basis.

However, the recent appreciation of the Euro against the US Dollar (USD) is increasingly viewed as a potential headwind for both growth and inflation. Market participants will closely monitor how policymakers address exchange rate dynamics in their communication on Thursday.

ECB Policy Rates (Previous Meeting)	Level
Deposit Facility	2.00%
Main Refinancing Operations	2.15%
Marginal Lending Facility	2.40%

Manufacturing Data Elicits Limited Market Reaction

Incoming manufacturing Purchasing Managers Index (PMI) data from both the UK and the Eurozone generated only a muted response in EUR/GBP trading.

In the UK, the S&P Global Manufacturing PMI rose to 51.8 in January from 51.6 previously, surpassing market expectations.

In the Eurozone, the Hamburg Commercial Bank HCOB Manufacturing PMI inched up to 49.5 in January from 49.4, slightly above consensus expectations of 49.4. Despite the improvement, the indicator remained below the 50 threshold, signaling continued contraction.

Bank of England Framework and Implications for Sterling

The Bank of England is responsible for setting monetary policy in the United Kingdom, with its primary mandate centered on achieving price stability through a 2% inflation target. The main policy instrument is the adjustment of base lending rates, which determines the rate at which the BoE lends to commercial banks and influences interbank rates, thereby affecting overall interest rates in the economy and the valuation of the Pound Sterling (GBP).

When inflation stands above target, the BoE typically responds by increasing interest rates, raising the cost of credit for households and businesses. Higher rates tend to be supportive for GBP, as they can make UK-denominated assets more attractive to international investors. Conversely, when inflation falls below target and signals weakening growth, the BoE may opt to lower interest rates to encourage borrowing and investment, which can weigh on the currency.

Quantitative Easing and Tightening: Impact on the Pound

In periods of severe financial stress, the BoE can implement Quantitative Easing (QE). Under QE, the central bank boosts credit conditions by creating money to purchase assets, typically government bonds or highly rated corporate bonds, from banks and other financial institutions. This policy is generally associated with a weaker Pound Sterling, as it expands liquidity and lowers yields.

Quantitative tightening (QT) operates in the opposite direction. When economic conditions improve and inflation begins to rise, the BoE can halt additional asset purchases and cease reinvesting principal payments from maturing bonds. This process reduces the size of the balance sheet over time and is usually seen as supportive for GBP.