EUR/GBP remains on the defensive around the mid-0.8500s, all eyes on ECB rate decision

• EUR/GBP posts modest gains near 0.8556 on Thursday. 
• The European Central Bank is set to hold interest rates at its January meeting. 
• Bank of England (BoE) is set to keep rates on hold on February 1 and will start its rate-cutting cycle at its August meeting.
• Traders await the European Central Bank (ECB) rate decision and press conference. 

The EUR/GBP cross remains on the defensive around the mid-0.8500s during the early European trading hours on Thursday. The European Central Bank (ECB) monetary policy decision will be closely watched by traders. The markets anticipate the ECB to maintain a status quo at its January meeting. At press time, the cross is trading at 0.8556, gaining 0.01% on the day.

The European Central Bank is expected to hold interest rates at their current record high at its monetary policy meeting on Thursday. The market has priced in a 60% odd of the first-rate cut as early as April, according to Reuters. ECB President Lagarde signaled in Davos that the first cut may come in the summer months of 2024. She stated that she remained reserved and data-dependent in her final outlook.

On the British pound front, the Bank of England (BoE) is set to keep rates on hold on February 1 and will start its rate-cutting cycle at its August meeting. Financial markets are widely anticipating the BoE cutting its rate in 2024 since inflation has fallen considerably since peaking at 11.1% in October 2022, the highest rate in four decades. 

Looking ahead, market players will closely watch the ECB rate decision and take more cues from the press conference. ECB's President Lagarde's speech might offer some hints about the future monetary policy path. These events could provide a clear direction for the EUR/GBP cross.