EUR/GBP Edges Up on UK Political Uncertainty

Key Moments

EUR/GBP traded around 0.8720 on Thursday, up 0.13%, supported by renewed Pound weakness.
Political uncertainty around the Gorton and Denton by-election and BoE easing expectations weighed on GBP.
Eurozone inflation slowed to 1.7% in January, reinforcing expectations of an extended ECB policy pause.

EUR/GBP Supported by Sterling Weakness

EUR/GBP recorded moderate gains on Thursday, trading near 0.8720 at the time of writing, an increase of 0.13% on the day. The move reflected fresh softness in the Pound Sterling (GBP), driven by political and monetary policy factors in the United Kingdom (UK), while the Euro (EUR) held relatively steady despite softer inflation data in the Eurozone.

UK Political Risk and BoE Easing Bias Pressure the Pound

In the UK, markets are closely monitoring the Gorton and Denton by-election, viewed as a key gauge for Prime Minister Keir Starmer. According to ING, a substantial loss for the Labour Party could revive questions about the party’s leadership and further undermine the Pound Sterling. Rabobank also noted that rising fragmentation within the UK political landscape could heighten currency volatility if the result surprises expectations.

At the same time, prospects of monetary easing from the Bank of England (BoE) continue to cap any meaningful recovery in GBP. Market participants are factoring in the possibility of a rate cut as early as March, amid signs of a cooling labor market and easing inflation pressures. The Consumer Price Index (CPI) slowed to 3% year-on-year in January from 3.4% in December, reinforcing expectations of a more accommodative policy stance.

Some members of the Monetary Policy Committee (MPC), including Alan Taylor, have indicated that two to three rate cuts may be warranted in the near term, while still acknowledging lingering risks linked to services inflation.

Eurozone Inflation Cools, ECB Signals Data-Dependent Pause

In the Eurozone, recent figures showed annual inflation easing to 1.7% in January, the lowest level since September 2024. European Central Bank (ECB) President Christine Lagarde told the European Parliament that the institution’s efforts to steer inflation back toward its 2% target are bearing fruit and that a stabilization around this objective is anticipated in the medium term. She also underlined the importance of preserving a data-driven and flexible policy approach as economic conditions evolve.

These comments support the view of a prolonged pause in ECB interest rate moves, limiting near-term fundamental upside for the Euro. Confidence data across the bloc remain uneven, with Economic Sentiment weakening in February, pointing to a still-fragile recovery.

Market Focus: Political Developments and Upcoming Data

Overall, the current behavior of EUR/GBP appears to be driven more by the Pound’s sensitivity to UK political uncertainty and expectations of BoE rate cuts than by any pronounced resurgence in Euro strength. Market participants are now turning their attention to the next release of German inflation data, scheduled for Friday, along with further political developments in the UK that could inject additional volatility into the cross.

Euro Performance Against Major Currencies

The table below summarizes the percentage change of the Euro relative to major currencies today. According to this snapshot, the Euro showed its strongest performance against the Swiss Franc.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.00%	0.10%	-0.25%	0.03%	0.04%	0.20%	0.21%
EUR	0.00%		0.11%	-0.24%	0.03%	0.04%	0.20%	0.21%
GBP	-0.10%	-0.11%		-0.34%	-0.08%	-0.06%	0.09%	0.10%
JPY	0.25%	0.24%	0.34%		0.28%	0.31%	0.44%	0.47%
CAD	-0.03%	-0.03%	0.08%	-0.28%		0.02%	0.17%	0.18%
AUD	-0.04%	-0.04%	0.06%	-0.31%	-0.02%		0.16%	0.17%
NZD	-0.20%	-0.20%	-0.09%	-0.44%	-0.17%	-0.16%		0.00%
CHF	-0.21%	-0.21%	-0.10%	-0.47%	-0.18%	-0.17%	-0.01%

The heat map illustrates percentage changes between major currencies, with the base currency shown in the left-hand column and the quote currency along the top row. For instance, selecting the Euro as the base currency from the left column and moving to the US Dollar on the top row provides the percentage change for EUR (base)/USD (quote).