EUR/GBP Advances as Rate Divergence Comes Into Focus

EUR/GBP climbed above 0.8750 in early European trading on Thursday, moving toward 0.8785 as traders looked ahead to interest rate decisions from the Bank of England (BoE) and the European Central Bank (ECB). The pair’s rise reflects a widening policy gap, with the pound losing ground after weaker UK inflation data^[1] and growing expectations that the BoE will cut rates later today^[2]. UK inflation came in below expectations in November^[3], strengthening the case for near-term easing. Headline CPI dropped to 3.2% year-on-year from 3.6% in October, below the 3.5% consensus. Core inflation also fell to 3.2% from 3.4%, showing price pressures are easing faster than predicted. Because of this, markets now almost fully expect a 25 basis point (bps) cut, which would bring the Bank Rate down to 3.75%^[4]. This environment has pressured sterling, especially compared to the euro, where policy expectations are steadier. The ECB is expected to keep rates unchanged at its December meeting, holding the deposit rate at 2%^[5]. Recent euro-area data have not been weak enough to justify more easing, and policymakers remain cautious. Both ECB Executive Board member Isabel Schnabel and Chief Economist Philip Lane have emphasised patience, suggesting that policy will remain unchanged^[6]. Although some speculation remains about possible future ECB tightening, market research suggests anticipation that rates will remain unchanged through 2026^[7]. This contrasts with the BoE, which is preparing to ease policy. As a result, EUR/GBP continues to find support from rate differentials as markets await central bank decisions later today. With the BoE poised to cut and the ECB expected to stand pat, the EUR/GBP pair remains underpinned by widening policy divergence, leaving the cross sensitive to central-bank messaging as the day unfolds.

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GBP/JPY Consolidates as BoE and BoJ Decisions Near

GBP/JPY remained above 208.00 during early Asian trading on Thursday, consolidating in a narrow range as markets awaited key interest rate decisions from the BoE and the Bank of Japan (BoJ). The pair traded near 208.20-208.30, with little momentum, as most traders avoided new positions ahead of central bank announcements. Market’s focus now shifts to the BoE, which is expected to cut rates later today. Recent UK data back this view: inflation has slowed faster than forecast, unemployment is at its highest since early 2021, and wage growth is at a multi-year low. These factors indicate easing domestic price pressures and have led to a sharp repricing in rate expectations, putting pressure on sterling ahead of the decision. In contrast, markets’ expectations for the yen are rising. Many in the market expect the BoJ to raise rates after its meeting on Friday^[8], following confident signals from Governor Kazuo Ueda about the prospects for lasting inflation^[9]. This more aggressive approach has helped the yen, especially as risk appetite has faded and demand for safe-haven currencies has grown. However, yen gains are limited. Ongoing concerns about Japan’s fiscal situation and continued government spending have made traders cautious ahead of the BoJ’s update. Because of this, GBP/JPY is caught between different policy directions, and its short-term movement will likely depend on what both central banks say next. With the BoE poised to ease and the BoJ edging closer to tightening, the GBP/JPY pair is consolidating near 208.00 as markets await confirmation of policy divergence before committing to the next directional move.

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EUR/USD Holds Firm as Bullish Bias Builds Ahead of US CPI

EUR/USD stabilized near 1.1740 during Thursday’s Asian session, consolidating after two modest declines while maintaining a positive technical outlook. The pair remains within a rising channel, which supports the overall upward trend despite short-term consolidation. Analysts note that the euro is trading well above its rising short- and medium-term averages. Both the nine-day and 50-day exponential moving averages are increasing, supporting the bullish trend. Momentum remains strong, with the 14-day Relative Strength Index near 67, indicating solid upward movement without reaching overbought levels^[10]. A breakout could see the pair retest December’s two-month peak near 1.1800 and potentially move toward the top of the channel if momentum persists. The immediate focus is on US inflation data due later today^[11]. The Bureau of Labor Statistics (BLS) will release November’s Consumer Price Index (CPI) today. Due to data-collection issues during the recent government shutdown, the report will exclude monthly CPI figures. Markets will instead focus on the annual headline and core numbers. Most expect headline inflation to remain near 3.1% year-on-year^[12], consistent with recent trends. Without detailed monthly data, investors will likely interpret the release in terms of Federal Reserve (Fed) policy expectations. Since the Fed has already signaled patience following its recent rate cut^[13], any surprise in the annual inflation numbers could shift expectations for rate cuts in early 2026^[14] and increase dollar volatility. For now, EUR/USD is expected to continue consolidating, supported by strong technicals as the market awaits clearer direction. With momentum indicators still constructive, the EUR/USD pair remains biased to the upside, though near-term direction hinges on whether US inflation data reinforces or challenges expectations for gradual Fed easing.

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Yen Softens Near Weekly Lows as Markets Await BoJ Signal

The Japanese yen weakened slightly to 155.86 on Thursday, keeping USD/JPY just under 156.00 as traders reduced positions ahead of the BoJ’s policy decision on Friday. Markets remained cautious, awaiting direction from Tokyo before moving beyond the current range. Short-term trading has supported the dollar, but broader policy concerns are preventing further yen weakness. Market anticipates the BoJ to continue normalising policy, with a rate hike likely at this meeting. Market research suggests the central bank will maintain gradual, data-driven rate increases. Markets are closely watching Governor Kazuo Ueda’s press conference^[15][16] for guidance on future rate changes. Japan’s shifting yield curve continues to support the yen. Concerns over next year’s government spending have pushed the 10-year Japanese government bond yield to its highest level since mid-2007^[17], narrowing the gap with other major economies and strengthening the yen. In the US, the dollar has stabilised after recent losses but remains constrained by expectations of further Fed easing in 2026^[18]. Markets are awaiting US consumer inflation data later today to confirm the Fed’s rate outlook, which may influence near-term USD/JPY movement. Market analysts note strong resistance near 156.00. A sustained move above this level could target the recent monthly high near 157.00. On the downside, initial support is around 155.30, with further declines exposing the 154.30-154.00 range. The USD/JPY pair remains caught between near-term dollar resilience and a structurally firmer yen outlook, with direction likely to hinge on BoJ guidance and US inflation data.

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