EUR/GBP declines toward 0.8530 as ECB rate-cut bets deepen

• EUR/GBP falls to near 0.8530 as soft Eurozone data deepen ECB rate-cut bets.
• ECB Cos is confident about inflation declining towards the 2% target.
• UK companies are becoming optimistic about BoE’s rate-cut prospects.

The EUR/GBP pair falls sharply to near 0.8530 on December's downbeat German Industrial Production data. The industrial output of the world’s fourth largest economy was down at a sharp pace of 1.6% monthly, while market participants projected a decline of 0.6%. In November, the economic data was contracted by 0.2%.

The Eurozone economy is underperforming due to labor market, consumer spending and manufacturing activities. And, now, downbeat Industrial Production data has added to indicators deepening chances of early rate cuts by the European Central Bank (ECB).

Odds of an early rate cuts by the ECB stemmed after policymaker Pablo Hernandez de Cos said on Tuesday, "it is already very important for European citizens to know that we are confident the next move will be a cut.” In the commentary, ECB Cos showed confidence in inflation declining towards the 2% target.

On the contrary, ECB executive board member Isabel Schnabel said in late Asian session on Wednesday that the last mile in bringing down inflation towards the 2% target will be the most difficult one. Schnabel warned that early rate cuts could flare up price pressures again.

Meanwhile, the Pound Sterling performs better against the Euro as the economic prospects of the United Kingdom's economy are improving again. UK service sector and construction companies have become more optimistic about fading recession risks and rate cuts by the Bank of England (BoE) amid easing price pressures.