EUR/GBP extends its downside below the mid-0.8500s, ECB holds rate

• EUR/GBP remains under pressure near 0.8530 amid the ECB’s dovish stance. 
• The European Central Bank (ECB) held interest rates steady at their current record high on Thursday.
• Improved UK Manufacturing PMI data might convince the BoE to hold interest rates higher for longer than expected. 

The EUR/GBP cross extends its downside below the mid-0.8500s during the early European session on Friday. The Euro (EUR) loses traction after the European Central Bank (ECB) held interest rates steady at its January monetary policy meeting on Thursday. At press time, the cross is trading at 0.8530, unchanged for the day. 

The European Central Bank (ECB) maintained monetary policy and interest rates unchanged at 4% for the third straight meeting on Thursday. The central bank reiterated that it would keep rates high for a “sufficiently long duration” to bring inflation to target. ECB President Christine Lagarde delivered dovish comments and emphasized that a pre-summer rate cut remains "likely.”

The market is pricing 87% odds of a rate cut from the ECB in April and fully priced for 50 basis points (bps) of cuts by the June policy meeting. This, in turn, might exert some selling pressure on the Euro and act as a headwind for the EUR/GBP cross. 

On the other hand, the improved UK Manufacturing PMI data might convince the BoE to hold interest rates higher for longer than market investors had expected, which could lift the Pound Sterling (GBP). Market players will closely watch the BoE interest rate decision next week, which is widely anticipated to maintain interest rates steady at 5.25% for the fourth time in a row.

Later on Friday, the German Gfk Consumer Confidence Survey for February, the German Buba Monthly Report, and the French Consumer Confidence will be due.