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EUR/GBP retreats from Wednesday’s multi-week high following the Bank of England’s rate announcement.
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The BoE holds its benchmark rate steady at 4.25%, citing persistent inflation pressures.
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UK inflation is projected to remain around 3.4% in the near term before gradually falling to the 2% target by 2026.
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Growing policy divergence between the ECB’s easing stance and the BoE’s caution puts pressure on the Euro.
The Euro (EUR) edged lower against the British Pound (GBP) on Thursday, ending its recent winning streak as the Bank of England (BoE) held its main interest rate steady at 4.25% during its June policy meeting. The decision, driven by ongoing inflation concerns and a cautious economic outlook, offered fresh support to the Pound.
EUR/GBP slipped roughly 0.11% on the day, retreating from Wednesday’s multi-week high of 0.8456 to trade near 0.8540 during the U.S. session. The Pound gained ground as markets responded to the BoE’s careful stance on inflation and rates, which contrasts sharply with the European Central Bank’s (ECB) recent move to ease policy.
The BoE’s Monetary Policy Committee voted 6–3 to maintain the current rate, with three members in favor of a 25 basis point cut to 4.00%. This internal divide signals growing concerns over weakening labor market conditions and slowing wage growth, despite headline inflation still sitting above the bank’s 2% target. The BoE reiterated that future policy decisions will be data-dependent, highlighting the ongoing need to balance inflation control with economic support.
BoE Governor Andrew Bailey acknowledged the recent decline in inflation but emphasized that risks remain, particularly due to global supply chain pressures and rising energy prices—partly driven by the worsening conflict in the Middle East. He pointed out that UK inflation, which climbed to 3.4% in May from a revised 2.6% in March, is expected to remain elevated through year-end before gradually easing to target by 2026. This outlook suggests the BoE is unlikely to rush into rate cuts without more concrete evidence of sustained disinflation.
ECB’s Easing Bias Widens the Policy Gap
In contrast, the European Central Bank has already begun loosening monetary policy. On June 5, the ECB cut its key interest rates by 25 basis points, lowering the deposit rate to 2.00% amid broader signs of cooling inflation across the eurozone. Markets are now pricing in at least one more cut before the end of the year.
ECB Governing Council member Joachim Nagel underscored the need for policy flexibility, citing ongoing global uncertainties that could affect the inflation outlook. This more dovish ECB stance highlights the growing divergence between the two central banks’ approaches, reinforcing market preference for the Pound over the Euro in the near term.
As long as the BoE remains on hold and the ECB continues easing, EUR/GBP is likely to stay under pressure. The contrasting monetary policy paths, combined with differing inflation dynamics, make the policy gap a key driver for this currency pair moving forward. Traders will now look to upcoming inflation data and central bank commentary for further direction.
