Europe chooses its direction

EUR/GBP

Key zone: 0.8600 - 0.8650

Buy: 0.8670 (on strong positive fundamentals) ; target 0.8850; StopLoss 0.8610

Sell: 0.8600 (on a pullback after retesting the 0.8650 level) ; target 0.8450; StopLoss 0.8660

Activity ahead of the upcoming meetings of European central banks remains low: both the euro and the pound are mainly following the dynamics of DXY. Speculative interest is concentrated on expectations of tomorrow’s decisions.

The key driver among the pair of European currencies remains the British pound.

Fresh data from the UK labor market look weak:

• The unemployment rate remained at 5.1%, which is the highest level since early 2021.
• The number of employed people decreased by 43 thousand — the strongest drop since the end of 2020.
• The number of unemployment benefit claims increased by 17.9 thousand after a sharp decline the previous month.
• At the same time, wage growth slowed: the headline figure fell to 4.7%, and excluding bonuses — to 4.5%.

Such a report clearly does not create preconditions for policy tightening.

Both the market and analysts are almost unanimous in expecting that the Bank of England will keep all parameters of monetary policy unchanged, including the key rate at 3.75%. The main argument is that inflation remains above the target level, and the regulator needs to make sure that wage pressure on the services sector is действительно weakening.

The overall consumer price index for the month moved out of negative territory and increased from -0.2% to 0.4%, which confirms the need for a cautious approach.

Traders’ main focus will be on the details of the meeting, primarily on the voting split. At the December meeting, the fate of the rate was decided by just one vote, so now the market is again closely monitoring the balance of opinions.

The baseline forecast assumes a voting configuration of “0-2-7”: two Committee members will support a rate cut, seven — keeping it unchanged. This scenario is fully priced in. If the number of supporters of a cut falls to one, the pound will receive support. If more than two Committee members vote for easing, the British currency will come under additional pressure.

The current macro environment allows the Bank of England to maintain a wait-and-see stance and focus on inflation risks.

For the eurozone, the market is also confident in keeping rates unchanged, at the level of 2.15%. Economic indicators do not yet show a sharp deterioration, however, according to Lagarde, the economy feels “uncomfortable.”

Inflation in January amounted to about 1.7% year-on-year, which is below the target level of 2% (core inflation about 2.2%, services sector about 3.2%), while expectations were higher. Eurozone economic growth in Q4 2025 is estimated at about 0.3% q/q, which turned out to be better than forecasts and serves as an argument in favor of maintaining the current policy.

If the euro continues to strengthen noticeably and begins to further reduce inflationary pressure, this may become a trigger for softer ECB rhetoric. With GDP growth at around 0.3% and inflation below 2%, the regulator gains room to soften its tone even without immediate rate changes.

In the news background, the key reference points for the market will be ECB rhetoric and comments from the Bank of England. If the ECB shifts its emphasis from declining inflation to problems in the services sector, this will support the euro.

From the Bank of England side, assessments of the balance between inflation and employment are important: if the regulator expresses concern about the state of the labor market, the pound may receive a short-term upward impulse.

The baseline scenario assumes rate preservation by both regulators, under which the trend in the EUR/GBP pair remains moderately downward.

So we act wisely and avoid unnecessary risks.

Profits to y’all!