EUR/GBP slips as traders brace for ECB monetary policy decision

The Euro (EUR) weakens against the British Pound (GBP) on Wednesday as investors turn their focus to the European Central Bank (ECB) policy decision due Thursday. The EUR/GBP cross is under pressure, trading around 0.8655 during the American trading hours, down nearly 0.43% on the day.

Wednesday’s pullback in the pair follows a short-lived rally earlier this week, as investors reassess Eurozone monetary policy prospects amid fading rate cut expectations. The central bank is expected to keep its deposit rate unchanged at 2.00% after cutting rates eight times over the past year. President Christine Lagarde has already signaled that the ECB is “getting to the end of the monetary policy cycle,” reinforcing expectations that the easing phase is nearing its close.

Fresh data released earlier in the day added to the cautious tone. Euro Area Consumer Confidence rose modestly in July, with the index climbing to -14.7 from -15.3 in June, beating forecasts of -15. While sentiment remains fragile, the uptick points to improving household expectations. This follows the ECB’s recent Bank Lending Survey, which showed rising demand for both mortgage and business loans another sign that the economy may be stabilizing.

At the same time, household inflation expectations across the Eurozone have eased back to pre-pandemic levels, offering the central bank more room to stay on hold. Altogether, the data supports the view that the ECB is done with aggressive easing for now, opting instead for a wait-and-see approach

Meanwhile on the other side, Bank of England (BoE) Governor Andrew Bailey struck a measured tone in his latest parliamentary testimony. Speaking to the Treasury Committee on Tuesday Bailey pushed back against UK Chancellor Rachel Reeves’ recent calls to ease post-financial crisis banking regulations. He defended the current framework particularly rules like the ring-fencing of retail and investment banking warning that loosening these safeguards could risk a repeat of the 2008 financial crisis.

Bailey also downplayed concerns around the recent rise in UK borrowing costs, saying it’s part of a broader global trend rather than a reflection of domestic fiscal risks. His remarks helped reassure markets that the BoE remains committed to financial stability. Additionally, the Bank confirmed it is pausing its work on the development of a digital Pound, citing progress in private sector innovation and reduced urgency for central bank intervention in the payments space.

Looking ahead, all eyes are now on Thursday’s packed economic calendar, with ECB monetary policy decision and Purchasing Managers Index (PMI) data due from the Eurozone, the United Kingdom, and the United States. While the ECB is expected to keep rates unchanged, markets will closely watch President Lagarde’s tone for clues on the future path of rates, especially after she signaled that the easing cycle may be nearing its end. Softer-than-expected Eurozone PMI figures could reinforce a cautious stance and pressure the Euro further. Meanwhile, UK PMIs are expected to show continued resilience, particularly in services, which could support the Pound.