EUR/GBP trades in a narrow range on Wednesday, with the British Pound (GBP) holding firm despite soft UK economic data, as broad-based US Dollar (USD) weakness continues to shape overall FX sentiment. At the time of writing, the cross is trading near 0.8710, with the Pound modestly outperforming the Euro (EUR).
Data released by the UK Office for National Statistics (ONS) showed that monthly Gross Domestic Product (GDP) rose by 0.1% in December, matching market expectations, after growth of 0.2% in November, which was revised down from an earlier estimate of 0.3%.
Preliminary figures also showed that the economy grew by 0.1% QoQ in the fourth quarter, undershooting expectations for a 0.2% increase and unchanged from the previous quarter’s pace. On an annual basis, GDP growth slowed to 1.0% in Q4, down from 1.2% previously and below market expectations, suggesting that the UK economy lost momentum toward the end of 2025.
The disappointing data has added to pressure on the Bank of England (BoE), with markets increasingly pricing in the possibility of an interest-rate cut as early as March.
Attention now turns to preliminary Eurozone GDP data due on Friday, with markets looking for the economy to grow by 0.3% QoQ in the fourth quarter, unchanged from the previous reading. On an annual basis, GDP is expected to rise by 1.3% YoY, easing slightly from 1.4% previously.
Earlier on Thursday, comments from European Central Bank policymakers offered a cautiously reassuring backdrop for the Euro. François Villeroy de Galhau said economic growth in the first quarter is expected to be consistent with an economy growing at around 1% on an annual basis in 2026. Meanwhile, Gabriel Makhlouf noted that inflation is basically on target at the moment, adding that the ECB is in a good place on policy.
Meanwhile, the ECB is widely expected to keep policy on hold for an extended period. A Reuters poll conducted between February 9-12 showed that 66 out of 74 economists expect the central bank to hold its deposit rate at 2.00% through 2026, and no change is expected before 2027.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region.
The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro.
QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
Source: https://www.fxstreet.com/news/eur-gbp-muted-after-soft-uk-gdp-eyes-turn-to-eurozone-data-202602121318
