EUR/GBP holds steady amid cautious ECB remarks

The Euro (EUR) holds firm against the British Pound (GBP) on Tuesday, with subdued trading conditions prevailing amid a notably light economic data calendar in both the Eurozone and the UK. At the time of writing, EUR/GBP is trading around 0.8684, little changed on the day.

On the monetary policy front, comments from European Central Bank (ECB) officials offered some support to the Euro. ECB Governing Council member Martin Kocher said the central bank is “in a good place” for now, adding that the ECB remains comfortable as long as deviations from the 2% inflation target remain modest.

However, Kocher acknowledged that downside risks to the outlook are “quite substantial” and stressed that policymakers want to preserve “optionality in any direction.”

ECB Governing Council member Gediminas Šimkus struck a similarly cautious tone, saying that current policy “fits the moment” and that interest rates are likely to remain on hold in February, while stressing that the path beyond that remains unclear.

Šimkus warned against overreacting to short-term data volatility, noting that it is normal for inflation to fluctuate around the 2% mark. Šimkus added that there is an equal chance the ECB’s next move, whenever it comes, could be either a hike or a cut.

Markets broadly expect the ECB to stick to a wait-and-see approach and keep interest rates on hold for an extended period. In contrast, the Bank of England (BoE) has signalled that rates are likely on a gradual downward path, a relative policy divergence that could help limit the Euro’s downside against the Pound.

However, recent UK data have reinforced the view that the BoE can afford to remain patient before delivering further rate cuts, offering underlying support to Sterling.

A Reuters poll conducted between January 21-26 showed that 54 of 56 economists expect the BoE to hold the Bank Rate at its February 5 meeting, in line with market pricing. Only around 55% of respondents see a rate cut by the end of March, while the rest expect rates to remain unchanged through the first quarter.

Looking ahead, the UK economic calendar remains light for the rest of the week. On the Eurozone side, traders await the Business Climate, Consumer Confidence and Economic Sentiment Indicator data due on Thursday, with attention turning to preliminary fourth-quarter GDP and the Unemployment Rate on Friday.