EUR/GBP recovers some lost ground above 0.8350, eyes on ECB rate decision

• EUR/GBP edges higher to around 0.8370 in Thursday’s early European session. 
• The ECB will likely cut interest rates on Wednesday, keeping the door open to further easing. 
• The markets have priced in almost three quarter-point rate cuts by the BoE in 2025. 

The EUR/GBP cross rebounds to near 0.8370, snapping the five-day losing streak during the early European trading hours on Thursday. However, the upside of the cross might be limited amid the dovish stance of the European Central Bank (ECB). The ECB interest rate decision and the preliminary reading of the Eurozone Gross Domestic Product (GDP) for the fourth quarter will be the highlights later on Thursday. 

The ECB is expected to cut its key interest rate by another 25 basis points (bps) to 2.75% at its January meeting on Thursday and is likely to keep open the door to further policy easing amid an uncertain economic outlook and worries about persistent inflation. This, in turn, might weigh on the Euro (EUR) against the Pound Sterling (GBP). The ECB lowered borrowing costs four times in 2024, and up to four moves are anticipated this year. 

On the GBP’s front, financial markets on Wednesday have priced in almost three quarter-point rate cuts by the Bank of England (BoE) this year, compared with fewer than two reductions in early January. The UK economy has stagnated and inflation eased last month, boosting the bets on BoE rate cuts. Economists polled by Reuters expect the BoE to cut its benchmark rate to 4.50% from 4.75% next week. "Although a dovish statement from the BoE can be expected to keep the pound on the back foot in the near term, it would also provide comfort for investors and the business community," said Jane Foley, senior FX strategist at Rabobank.