EUR/GBP advanced in quiet trading

The EUR/GBP stands at 0.8555 in Monday’s session, jumping above the 20-day SMA. Sticky European inflation may push the ECB to a more aggressive stance toward the easing cycle.

The week’s highlight will be the British and the EU’s Manufacturing PMIs from February. As long as markets bet on the BoE starting its easing later than the ECB the upside may be limited.

In Monday’s session, the EUR/GBP was at 0.8555 amid anticipation of possible shifts in European Central Bank policy, as recent indicators point towards revitalized wage growth and a surprising uptick in core inflation.

However, markets are still betting on a sooner easing-cycle start than the Bank of England which gives the Pound an advantage over the euro.

In January, core inflation in the Euro area was above expectations at 3.3%, suggesting a strengthening Eurozone economy. Resilient wage growth may contribute to stickier inflation, pushing the ECB to hold rates longer. If European economies show strengths like the British economy, the Euro could partially strengthen.

However, markets are betting between 125-100 bps of easing from the ECB in 2024, compared to sub-100 bps of cutting from the BoE, which could limit the upside. Incoming data will set the timing of the easing, and key Manufacturing PMI readings from both economic blocks from February could ignite volatility in the pair.