• EUR/GBP softens to near 0.8725 in Wednesday’s early European session. 
• The BoE’s cautious stance, which signaled that the pace of future cuts may slow, boosts the Pound Sterling. 
• Declining expectations that the ECB will cut interest rates in February 2026 might cap the downside for the cross. 

The EUR/GBP cross trades in negative territory for the fifth consecutive day around 0.8725 during the early European session on Wednesday. The Pound Sterling (GBP) edges higher against the Euro (EUR) after the Bank of England (BoE) delivered a widely anticipated rate cut while indicating that the bar for further reduction was high due to persistent inflation.

The BoE’s Monetary Policy Committee decided to cut a quarter point in its benchmark interest rate to 3.75% last week, the first cut since last August. Governor Andrew Bailey said during the press conference that rates are likely to continue on a gradual downward path, but “how much further we go becomes a closer call” with each cut.

Money markets believe the BoE will deliver at least one rate cut in the first half of the year and are pricing in nearly a 50% probability of a second before the year-end, according to Reuters. Expectations that the UK central bank will follow a gradual monetary easing path in 2026 could provide some support to the GBP and act as a headwind for the cross in the near term. 

The European Central Bank (ECB) left its three key interest rates unchanged at its December policy meeting. The decision was unanimous and marks the fourth consecutive meeting where rates have been held steady. ECB President Christine Lagarde said the bank remains in a “good position” and emphasized that there is consensus within the Governing Council to keep all options open, including the possibility of raising rates if necessary. 

The money markets have priced in a 25-basis-point interest rate cut by the ECB in February 2026 and currently remain below 10%. Signals that the ECB rate cut cycle is ending might help limit the EUR’s losses.