EUR/GBP appreciates to near 0.8250 ahead of BoE policy decision

EUR/GBP halts its three-day losing streak, trading around 0.8250 during the early European hours on Thursday. The EUR/GBP cross remains in positive territory after the release of Germany's GfK Consumer Confidence Survey, which improved to -21.3 for January, up from the previously revised -23.1. The index was expected to come in at -22.5.

The upside of the EUR/GBP cross could be limited as the Euro receives downward pressure from the rising odds that the European Central Bank (ECB) will reduce interest rates at every meeting until June 2025. This sentiment is bolstered by policymakers' concerns over mounting economic risks in the Eurozone.

Speaking at the Annual Economics Conference, ECB President Christine Lagarde signaled the central bank’s readiness to implement additional rate cuts if incoming data confirms that disinflation remains on course. Lagarde also remarked that the earlier emphasis on maintaining "sufficiently restrictive" rates is no longer justified.

Additionally, the EUR/GBP cross may face challenges as the Pound Sterling (GBP) appreciates due to the increased likelihood of the Bank of England (BoE) keeping interest rates unchanged later in the day while remaining focused on addressing elevated domestic inflation.

On Wednesday, data showed that the UK Consumer Price Index (CPI) increased by 2.6% year-over-year in November following October’s 2.3% growth. Core CPI, excluding volatile food and energy items, rose 3.5% YoY in November, against its previous rise of 3.3%. Meanwhile, the annual services inflation steadied at 5.0%, below forecasts of 5.1% but above the BoE's estimate of 4.9%.