• EUR/GBP weakens to around 0.8730 in Tuesday’s early European session. 
• The UK economy expanded 0.1% QoQ in the third quarter, in line with the consensus. 
• ECB’s Lagarde emphasized the central bank is not pre-committing to a specific rate path, keeping all options on the table. 

The EUR/GBP cross trades in negative territory for the fourth consecutive day near 0.8730 during the early European session on Tuesday. The Pound Sterling (GBP) weakens against the Euro (EUR) after the Bank of England (BoE) delivered a widely expected rate cut but suggested that the bar for further reduction was high, given persistent inflation.

The UK central bank cut the interest rates to 3.75% at its December meeting last week, the lowest level since February 2023. BoE Governor Andrew Bailey said during the press conference that the overall trend for interest rates was down, but this might not happen as quickly as some analysts expect.

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. 

Furthermore, the final reading of UK Gross Domestic Product (GDP) data underpins the GBP. The Office for National Statistics (ONS) revealed that the UK economy grew at a quarterly pace of 0.1% in the third quarter (Q3), in line with preliminary estimates.

On the other hand, the European Central Bank (ECB) decided to keep all three key interest rates unchanged for the fourth consecutive time at its December meeting. The decision aligns with market expectations. ECB President Christine Lagarde said that monetary policy is in a “good place” and rates will remain steady for a prolonged period. Signals that the ECB rate cut cycle is ending could provide some support to the EUR against the GBP in the near term.