EUR/GBP climbs above 0.8400 amid growing concerns about stagflation in the United Kingdom

• EUR/GBP extends its upward momentum as the Pound Sterling struggles amid mounting concerns over stagflation in the UK.
• The Pound Sterling faces challenges as a 30-year UK gilt yield has climbed to 5.36%, its highest level since 1998.
• ECB Lane indicated that further rate cuts are probable as the central bank seeks to avoid a slowdown in economy.

EUR/GBP extends its strength for the fourth consecutive day, trading near 0.8410 during Monday’s European session. The cross gains traction as the Pound Sterling (GBP) continues to underperform, weighed down by concerns over stagflation in the United Kingdom (UK) amid persistent inflation and stagnant economic growth.

A recent surge in UK government bond yields has sparked worries about the country's fiscal health. The 30-year UK gilt yield has climbed to 5.36%, its highest level since 1998, intensifying challenges for Chancellor of the Exchequer Rachel Reeves and further dampening sentiment around the GBP.

Investors have been offloading UK gilts, driven by fears of mounting debt, sluggish growth, and inflation risks. These concerns contribute to the GBP’s relative weakness, supporting a bullish outlook for the EUR/GBP cross.

In the Eurozone, growing expectations of further policy easing by the European Central Bank (ECB) weigh on the Euro and limiting the upside of the EUR/GBP cross. Traders adopt caution amid uncertainty that protectionist policies under US President-elect Donald Trump's administration will lead to a global trade war, diminishing the appeal of risk-sensitive assets like the Euro.

Speaking at the Asian Financial Forum (AFF) 2025 on Monday, ECB Chief Economist Philip Lane stated that additional interest rate cuts are likely as the central bank aims to prevent the economy from slowing down excessively. Lane emphasized the importance of adopting a balanced approach, being "neither too aggressive nor too cautious" in policymaking this year.

At the same event, ECB policymaker Olli Rehn highlighted the need for Europe to avoid being caught off guard by a potential trade war, stressing that the European Union (EU) should not bear the brunt of tariffs. Rehn also supported the continuation of rate cuts, considering them a prudent course of action.