EUR/GBP Slips as Eurozone Inflation Signals ECB Rate Cut

The EUR/GBP pair is under pressure, sliding toward the 0.8400 psychological level as Eurozone inflation data fuels expectations of a dovish European Central Bank (ECB) policy shift. Released on Tuesday, May 2025, preliminary figures show core inflation cooling, pushing the ECB closer to a rate cut at its Thursday meeting. Meanwhile, the Bank of England (BoE) faces a different reality, with resurgent UK inflation and robust economic data supporting a steady policy stance. This divergence in monetary policy outlooks is driving the Pound Sterling’s strength, but risks loom for both currencies. Here’s why this matters and what to watch next.

Eurozone Inflation Cools, ECB Cut Looms

Preliminary data for May 2025 shows the Eurozone’s core Harmonized Index of Consumer Prices (HICP) rising just 2.3% annually, down from 2.7% in April and below the expected 2.5%. With inflation nearing the ECB’s 2% target, markets anticipate a 25-basis-point rate cut on Thursday, June 5, 2025. This dovish tilt weakens the Euro, as lower rates reduce its appeal to investors. The ECB, led by President Christine Lagarde, must balance growth concerns with inflation control, but the softening data suggests room for easing. If the cut materializes, EUR/GBP could face further downward pressure.

BoE Holds Firm Amid UK Resilience

In contrast, the BoE, under Governor Andrew Bailey, is likely to maintain rates at its June 19, 2025, meeting. UK inflation has ticked higher, and stronger-than-expected economic growth provides the BoE with flexibility to delay cuts. This resilience bolsters the Pound, as investors see less urgency for monetary easing compared to the Eurozone. The policy divergence—ECB easing versus BoE holding—has driven EUR/GBP below the 78.6% Fibonacci retracement level (0.8428) from the 2022 move (0.8203–0.9254), with prices testing the 10-day Simple Moving Average at 0.8415.