Under Triple Pressure: Trade, Employment, and Inflation! GBP/USD May Decline

Forex

Technical Analysis

Summary:

At its December meeting, the Bank of England's Monetary Policy Committee decided to cut the benchmark interest rate by 0.25 percentage points to 3.75%, marking the first rate reduction since August last year. Governor Andrew Bailey stated at a press conference that rates may continue to be lowered gradually, but the magnitude of each cut will be "hard to predict."

SELL GBPUSD

EXP

TRADING

1.35029

Entry Price

1.29000

1.36000

1.34579 -0.00096 -0.07%

0.0

Pips

Flat

1.29000

Exit Price

1.35029

Entry Price

1.36000

Fundamentals

According to data from job search website Adzuna, the UK labor market is experiencing a simultaneous cooling in hiring and rising wages. Over the year to November, the number of online job advertisements fell sharply by 15.2%, the largest drop since 2025, and has declined for five consecutive months on a month-on-month basis, indicating a clear contraction in employers' willingness to hire. This trend is closely tied to the policy environment: since Chancellor Rachel Reeves raised social security contributions last year, businesses have become more cautious about staffing, while concerns over potential further tax increases have also weighed on the jobs market, pushing the UK unemployment rate to its highest level since 2021 in the three months to October. In stark contrast to the slowdown in hiring activity, wage growth remains robust. Over the same period, advertised salaries rose by 7.7% compared with the previous year, an acceleration from the prior month, with particularly strong wage gains in the IT sector. This contradictory situation puts the Bank of England in a dilemma: strong wage growth could intensify inflation stickiness, while signs of cooling hiring and economic slowdown support continued accommodative monetary policy. In December, the BoE cut its policy rate by 25 basis points to 3.75%, with a vote split of 5–4 highlighting persistent inflation concerns. Although November's inflation rate fell to 3.2%, it remains well above the BoE's 2% target. UK GDP grew by 0.1% in Q3, in line with expectations, but the BoE expects Q4 GDP to be flat. Governor Bailey hinted that rates are likely to decline further, but warned that as rates approach neutral levels, room for additional cuts is limited. Any move beyond the latest cut would require careful calibration and would largely depend on forthcoming economic data.

The CME FedWatch tool shows an 80.6% probability that the Federal Reserve will keep rates unchanged at its January meeting, up from 77.9% a week earlier. Meanwhile, the likelihood of a 25-basis-point cut has dropped from 22.1% a week ago to 19.4%. The US central bank cut the federal funds rate by 25 basis points in December, lowering the target range to 3.50%–3.75%. Amid a cooling labor market and still-elevated inflation, the Fed plans cumulative rate cuts of 75 basis points in 2025. In addition, the latest weekly US labor market data were mixed. Initial jobless claims fell to 214,000 from 224,000 the previous week, better than the market forecast of 223,000. Meanwhile, continuing claims rose from 1.885 million to 1.923 million, while the four-week moving average of initial claims edged down from 217,500 to 216,750. Traders may focus on Tuesday's FOMC meeting minutes from December, as they could shed light on internal policy debates that shape the Fed's outlook for 2026.

Technical Analysis

Regarding the daily chart, GBP/USD forms a "dark cloud cover" pattern. The MACD and signal lines are about to produce a death cross, and RSI highs are starting to retreat, signaling an impending correction. The price is likely to break below the EMA12 area. Nearby support lies around the EMA12 and the Bollinger Middle Band at approximately 1.343 and 1.330, respectively. RSI stands at 67, indicating bullish sentiment in the market. The one-hour chart suggests that the Bollinger Bands are widening downward, moving averages are diverging lower, and price has broken below the EMA50. MACD upward momentum is gradually weakening, with both lines crossing bearishly and falling below the zero line, suggesting short-term bearish momentum. Support is found near the EMA200 and round-number levels at roughly 1.344 and 1.340. RSI is at 42, reflecting pessimistic sentiment, and RSI highs are gradually declining. Therefore, it is recommended to sell at highs.

Under Triple Pressure: Trade, Employment, and Inflation! GBP/USD May Decline_1

Under Triple Pressure: Trade, Employment, and Inflation! GBP/USD May Decline_2

Trade Recommendations:

Trade Direction: Sell

Entry Price: 1.349

Target Price: 1.29

Stop Loss: 1.36

Support: 1.3/1.29/1.28

Resistance: 1.35/1.36/1.373

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

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Tank

Commodity

Forex

Summary:

Gold prices retreat from nearly US$4,550 record highs as traders lock in profits ahead of the holiday. A strengthening dollar may also exert pressure on precious metals, as it raises the cost of gold for non-U.S. investors, which could suppress gold prices.

SELL XAUUSD

EXP

PENDING

4494.00

Entry Price

4100.00

4600.00

4291.84 -47.27 -1.09%

Pips

PENDING

4100.00

Exit Price

4494.00

Entry Price

4600.00

Fundamentals

Geopolitical uncertainty is also driving market risk-aversion sentiments. Trump disclosed that ceasefire negotiations between Russia and Ukraine are "close to reaching an agreement," but key territorial disputes remain unresolved. Ukrainian President Zelenskyy claimed that an agreement on security guarantees with the U.S. has been reached; however, Russia launched a large-scale missile strike early on the 27th targeting Kyiv and other areas’ energy and civilian infrastructure, indicating that the conflict is unlikely to see substantial de-escalation in the near term. Additionally, the Trump administration announced a blockade on sanctioned oil tankers operating in and out of Venezuela. These geopolitical events have exacerbated market volatility, boosting demand for safe-haven assets. Capital flow trends further confirm increased market activity. As of December 26, the world's largest gold ETF, SPDR Gold Trust, holdings rose to 1,071.13 tons, an increase of 18.59 tons over the week. IG analyst Tony Sycamore noted that the silver market is exhibiting "generational bubble" characteristics, with significant capital inflows into precious metals. This phenomenon is driven not only by market expectations of Federal Reserve interest rate cuts and central bank and private sector physical buying but also by the severe imbalance in silver supply and demand, fueling a surge in physical silver buying enthusiasm.

The Federal Reserve has implemented three rate cuts this year, with traders anticipating an additional two reductions next year. According to the CME FedWatch tool, financial markets project nearly a 19.4% probability of a rate cut at the Fed's upcoming January meeting. Last week, President Trump expressed his preference for the next Federal Reserve chair to maintain low-interest rates indefinitely and to avoid policy divergence. The market's expectations for a dovish shift in U.S. monetary policy through 2026 continue to intensify, with current forecasts indicating two rate cuts for the year, potentially beginning as early as mid-year. Additionally, market participants are closely monitoring potential Fed chair candidates, with current National Economic Council Director Hassett and former Fed Governor Warsh regarded as front-runners. Given President Trump's longstanding calls for rate reductions, market sentiment suggests that the new chair may adopt a dovish stance, further reinforcing the narrative of medium- to long-term monetary easing. Despite recent resilient economic data in the U.S., investor optimism for policy easing remains unaffected. On the debt front, U.S. Treasury debt has surpassed US$38.5 trillion, with escalating debt pressures fueling concerns over economic and financial risks in 2026—prompting continued safe-haven demand for precious metals. Meanwhile, the global central bank's gold reserve accumulation and de-dollarization structural trends have solidified gold prices' long-term support.

Technical Analysis

The 4H Bollinger bands are contracting, indicating narrowing price volatility, while SMAs remain flat, suggesting that the bullish trend persists. The candlestick shows a long upper shadow, signaling significant short-term resistance. The MACD has formed a death cross, indicating weakening upward momentum; the MACD line and signal line are pulling back towards the zero-axis, which is still relatively distant, implying that the correction is incomplete. A breach below the middle Bollinger band would likely lead to a correction towards the EMA50 or the lower Bollinger band, at approximate levels of 4418 and 4400 respectively. The RSI stands at 52, indicating a neutral market with resistance at 4500 and 4550. In the 1D timeframe, prices are trending upward along the upper Bollinger band, but a bearish engulfing pattern suggests caution; as long as 4550 is not broken, a short-term correction towards the EMA12 at around 4400 is expected. The RSI peak is beginning to decline without confirming a top, while the RSI reading of 72 indicates the price remains in a bullish zone. It is recommended to go short before going long.

A Plunge from Its Highs! Has Gold Reached Its Historical Peak?_1

A Plunge from Its Highs! Has Gold Reached Its Historical Peak?_2

Trading Recommendations

Trading Direction: Sell

Entry Price: 4494

Target Price: 4100

Stop Loss: 4600

Support: 4200, 4100, 3800

Resistance: 4530, 4550, 5000

Risk Warnings and Disclaimers

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Alan

Commodity

Summary:

Today, silver broke through the 80.00 threshold, driven by news that China is planning to impose restrictions on its silver exports. This development may open up further upside potential for silver prices.

BUY XAGUSD

Close Time

CLOSED

76.075

Entry Price

89.000

73.000

71.199 -5.061 -6.64%

307.5

Pips

Loss

73.000

72.994

Exit Price

76.075

Entry Price

89.000

Fundamentals

During today's trading session, which saw a significant surge followed by a pullback in silver prices, a core fundamental driver was market anticipation and anxiety over China's impending restrictions on silver exports. Recently, social media and several news sources have widely reported that China plans to implement stricter controls on silver exports starting January 1st, 2026, requiring exporting companies to obtain government permits. This has been interpreted as a potential signal of tightening non-domestic supply.

The market impact of this policy rumor stems from China's role as a critical link in the global silver supply chain. If its exports are constrained, expectations of a tighter global physical supply may rise. According to some market reports, China's plan to adopt a licensing system for exports is seen by investors as tangible control over the supply side, which would limit the volume of silver available in international markets.

This news prompted reactions from industry leaders, including Tesla CEO Elon Musk, who publicly voiced concerns about the silver supply chain, stating that restricting exports is "not a good thing" and could place pressure on industrial sectors such as electric vehicle manufacturing and solar equipment production. Musk's comments amplified market perceptions of silver's scarcity as a "critical industrial raw material," thereby boosting demand for both silver futures and spot silver.

Furthermore, global analysts report that China's new export licensing regime would significantly reduce exportable quantities and may exclude most small and medium-sized exporters. Logically, this suggests that from 2026 onward, approximately 60–70% of China's domestically produced silver supply could be subject to stricter controls. While official documents have yet to disclose full details, the market has already factored in these expectations into pricing mechanisms.

It is worth noting that some market analyses suggest China, according to currently available policy documents, has not introduced strict case-by-case approval ("one license per transaction") for each silver export. Rather, it is imposing qualification requirements and a licensing system for silver-exporting enterprises — possibly intended to guide export flows rather than prohibit them outright. Nonetheless, the "expectation of policy tightening" alone has been sufficient to trigger rapid capital movements in a market environment characterized by relatively low liquidity.

Technical Analysis

Silver opened higher today and continued to climb sharply, quickly breaking through the key round-number level of 80.00 and momentarily reaching a historic high of 84.07. Previous resistance levels were instantly overcome amid supportive fundamental expectations, but a rapid retreat soon followed, confirming the presence of overhead resistance.

Based on the 4-hour chart, silver's trend remains clearly bullish, with multiple moving averages arranged in a bullish alignment, indicating that the broader trend is still upward with strong continuity. Currently, three consecutive 4-hour candles have pulled back to just above the MA10 without breaking below it, demonstrating solid support at this moving average. Silver may continue its upward movement. However, if it falls below MA10 in the short term, the commodity could test support at the MA20 level near 73.50.

Trading Recommendations

Trading direction: Buy

Entry price: 76.00

Target price: 89.00

Stop loss: 73.00

Valid Until: January 12, 2026, 23:00:00

Support: 74.74/73.50

Resistance: 84.00/90.00

Risk Warnings and Disclaimers

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Eva Chen

Forex

Summary:

Tokyo’s inflation decline exceeded expectations, but it is unlikely to prevent the Bank of Japan from continuing to raise interest rates.

BUY GBPJPY

EXP

TRADING

211.355

Entry Price

215.750

208.000

210.772 +0.140 +0.07%

0.0

Pips

Flat

208.000

Exit Price

211.355

Entry Price

215.750

Fundamentals

On Wednesday, GBPJPY saw a modest increase. Due to the holiday, trading was light, resulting in smaller price fluctuations. However, the overall trend remained upward.

Data released by Japan's Ministry of Internal Affairs and Communications on Friday showed that Tokyo's inflation cooled more than expected, with the pressure from food and energy prices easing. However, this is unlikely to deter the Bank of Japan from continuing to raise interest rates.

The sub-index shows that Tokyo's consumer price index excluding fresh food rose by 2.3% YOY in December, a marked slowdown from the previous month's 2.8%. This is the first time that inflation has slowed since August, mainly reflecting the deceleration in food price increases and the decline in energy costs. Previously, the market had expected the index to slow down to 2.5%. The overall inflation index fell from 2.7% in the same period of the previous year to 2.0%; and the core inflation index, which excludes energy prices, also slowed to 2.6%.

Tokyo's inflation data is usually regarded as a leading indicator of the national inflation trend. Despite a noticeable slowdown in overall inflation, it remains above the Bank of Japan's 2% target, keeping the central bank on track for further policy tightening. (This is seen as bullish for the yen.)

However, the Japanese government's plan to announce a record budget of over 120 trillion yen for the fiscal year 2026 will undermine the Bank of Japan's efforts to combat inflation. On Thursday, Takaichi Sanae stated that the total budget for the fiscal year starting in April 2026 is approximately 122.3 trillion yen (about 786 billion US dollars). This represents an increase of about 6.3% from the 115.2 trillion yen allocated for the current fiscal year and is the largest initial budget on record.

Takaichi Sanae said that in order to help raise funds, the government plans to raise about 29.6 trillion yen through the issuance of new government bonds. She also said that the budget's reliance on debt issuance will drop from 24.9% this year to 24.2%.

Takaichi Sanae said, “I believe this budget has struck a balance between strengthening the economy and ensuring fiscal sustainability.” In addition to the new bond issuance, tax revenue will be key to funding the budget, with tax revenue expected to be about 83.7 trillion yen next year.

Since U.S. President Trump launched a global trade war this year, the yen has weakened overall. Concerns about fiscal policy under Takaichi Sanae's leadership as well as the slow progress of the monetary policy normalization process have continued to put pressure on the yen. Against this backdrop, the pound has risen about 6.9% against the yen so far this year, reaching its highest level since August 2008. This reflects the ongoing policy divergence between the UK and Japan.

Fiscal Expansion Constrains Yen Performance, BOJ Rate Hike Effects May Be Diminished_1

Technical Analysis

During the day, the trend of GBPJPY is neutral to the upside. If it breaks below the support level at 206.74, a rebound is likely. On the upside, if it breaks through the 61.8% retracement of the range between 199.04 and 205.30 at 211.98, the current upward trend is expected to continue, with the next target at the 100% retracement level of 219.99.

Trade Recommendations

Trade Direction: Buy

Entry Price: 210.00

Target Price: 215.75

Stop Loss: 208.00

Valid Until: January 12, 2026, 23:55:00

Support: 209.81/209.29/208.21

Resistance Levels: 211.98/212.82/215.10

Risk Warnings and Disclaimers

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Tank

Forex

Technical Analysis

Summary:

The monetary policy outlook remains broadly favorable for the pound. At its December meeting, the Bank of England (BoE) indicated that while rates may decline further, future policy decisions would become less predictable, dampening market expectations for an aggressive easing cycle. Consequently, the BoE is projected to adopt a cautious policy stance through 2026. United Bank of Switzerland (UBS) forecasts the BoE may cut rates twice more in 2026, each by 25 basis points, with the first potentially arriving in the first half of this year, bringing the bank rate to around 3.25%. UBS added that persistent inflation in the service sector and still high wage growth may slow down the easing pace.

SELL GBPUSD

Close Time

CLOSED

1.34923

Entry Price

1.29000

1.36000

1.34579 -0.00096 -0.07%

6.7

Pips

Profit

1.29000

1.34856

Exit Price

1.34923

Entry Price

1.36000

Fundamentals

Official data released this week showed that the UK economy continued its slowdown in the third quarter, with gross domestic product (GDP) rising by a mere 0.1% quarter-on-quarter, matching the initial estimate. This indicates that momentum has gradually weakened since the robust growth seen earlier in the year. Notably, amid the overall slowdown, the UK household sector presented a contradictory picture: the household savings rate fell by 0.7 percentage points to 9.5% in the third quarter, hitting a new low in over a year. This decline was primarily driven by tax increases outpacing income growth and inflation, squeezing households' real disposable income. However, household consumption expenditure rose by 0.3% quarter-on-quarter during the same period, marking the fastest growth in nearly a year. This phenomenon of “declining savings and rising consumption” suggests that some households may be drawing on savings to maintain spending levels. It reflects both the financial pressures stemming from high inflation and tax hikes, while also highlighting the resilience of domestic demand within the economy. The weakening growth momentum is closely tied to recent policy adjustments. On the fiscal front, previously implemented tax hikes have weighed on households and businesses, while market expectations of further tax increases in the government's second budget at the end of November have dampened economic activity over the past few months. Against this backdrop, the Bank of England (BoE) voted by a narrow 5-4 majority at its December meeting to cut its base rate by 25 basis points to 3.75%. This rate cut was not regarded as the beginning of an aggressive easing cycle. The BoE emphasized that subsequent policy decisions would be strictly data-dependent and that inflation trends would remain under close scrutiny. The BoE projected zero GDP growth for the fourth quarter but maintained its assessment that the economy's underlying potential growth rate remains around 0.2% per quarter.

The US market reacted mildly to the latest weekly data released in the US labor market, which delivered a mixed message. Initial jobless claims fell to 214,000 from 224,000 the prior week, below market expectations of 223,000. Meanwhile, the number of continuing unemployment claims rose from 1.885 million to 1.923 million, while the four-week moving average of initial claims edged down slightly from 217,500 to 216,750. Although the dollar rebounded in the short term, it remains under sustained pressure as markets anticipate further monetary policy easing by the Federal Reserve in 2026, thereby providing solid support for the GBP/USD. The US Dollar Index, which measures the dollar against a basket of six major currencies, hovered near 97.7. Markets widely expect the Federal Reserve to keep interest rates unchanged at its January meeting, with the CME FedWatch Tool showing only a 15.5% probability of a rate cut. Following the December policy decision, Fed Chair Jerome Powell stated that the central bank “stands ready to watch the economy's path.” Nevertheless, investors anticipate the Fed will resume easing later this year, with current market expectations pointing to two rate cuts in 2026.

Technical Analysis

GBP/USD: On the daily chart, the price has formed a dark cloud cover pattern. The MACD line and the signal line are about to form a death cross, and the RSI is retreating from its highs, signaling an impending correction. It is highly likely to break below the EMA12 level, with supports near the EMA12 and the middle Bollinger Band around 1.341 and 1.33, respectively. The current RSI reading stands at 67, indicating bullish market sentiment. On the hourly chart, the Bollinger Bands are widening downward, moving averages are diverging downward, and the price has broken below the EMA50. MACD's upward momentum is gradually weakening, with the MACD line and the signal line forming a death cross and falling below the zero line, signaling a short-term bearish trend. Support levels are near the EMA200 and key psychological levels, approximately at 1.343 and 1.34. The RSI reading is 37, reflecting pessimistic market sentiment, and its highs have been gradually declining. Therefore, it is recommended to go short at highs.

GBP/USD Outlook Remains Bleak with Two More Rate Cuts Expected!_1

GBP/USD Outlook Remains Bleak with Two More Rate Cuts Expected!_2

Trading Recommendations

Trading direction: Sell

Entry price: 1.349

Target price: 1.29

Stop loss: 1.36

Support: 1.3, 1.29, 1.28

Resistance: 1.35, 1.36, 1.373

Risk Warnings and Disclaimers

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Tank

Forex

Technical Analysis

Summary:

The Japanese government raises its economic growth forecast for the current fiscal year and expects further acceleration in growth next fiscal year. Official projections suggest that, supported by large-scale fiscal stimulus, private consumption and capital expenditure will remain resilient. Tax cuts and slowing inflation are expected to stabilize household spending, while subsidies and tax incentives targeting infrastructure, artificial intelligence, and semiconductors will drive investment growth.

BUY USDJPY

Close Time

CLOSED

156.275

Entry Price

160.000

154.000

156.617 +0.198 +0.13%

20.4

Pips

Profit

154.000

156.479

Exit Price

156.275

Entry Price

160.000

Fundamentals

Released this week, the BoJ meeting minutes revealed that a systematic discussion at its October policy meeting had begun, evaluating whether to continue raising interest rates and assessing the necessity of further increasing the policy rate to a level considered "neutral" for the economy. The minutes show that most policymakers believe that gradually adjusting the degree of monetary easing will help achieve long-term stable economic growth as economic activity and price conditions improve. Some members also noted that recent yen depreciation could pose upside inflation risks by pushing up import costs. Although the BoJ kept the interest rate unchanged at 0.5% during its October 29–30 meeting, Governor Kazuo Ueda signaled a more hawkish stance, with two board members even proposing an immediate hike to 0.75%. Ultimately, the BoJ officially raised the policy rate to 0.75% at its December meeting—the highest level in 30 years—marking a further exit from its long-standing ultra-loose monetary policy. Governor Ueda stated that Japan's underlying inflation is steadily accelerating and approaching the 2% target. With real interest rates still extremely low, if economic and price trends align with the bank's baseline scenario, further rate hikes would be reasonable. At the same time, he pointed out that persistent labor market tightness, demographic shifts, and companies passing on costs to a broader range of goods and services indicate that a mechanism of wage growth keeping pace with inflation is gradually forming. While markets expect the BoJ to hold rates steady at its January meeting, upcoming economic and inflation forecasts will serve as key indicators for future policy direction—especially against the backdrop of yen weakness exerting upward pressure on prices.

Markets widely expect the U.S. Federal Reserve to ease monetary policy further in 2026. This expectation has overshadowed strong U.S. economic growth data and continues to weigh on the dollar. In fact, the U.S. Department of Commerce reported that the world's largest economy grew at an annualized rate of 4.3% in the July–September period, exceeding both market expectations and the previous quarter's 3.8% growth. However, given signs of slowing inflation and cooling in the U.S. labor market, traders still anticipate the Fed will cut rates twice more next year. President Trump declared that any candidate for Fed Chair must commit to lowering interest rates even when the economy performs well. This has heightened uncertainty around the Fed's long-term policy credibility and reinforced the bearish outlook for the Dollar Index. Nevertheless, tightening liquidity toward year-end serves as a reminder for aggressive short sellers to remain cautious and prepare for potential further dollar declines.

Technical Analysis

As shown in the daily chart, USD/JPY displays narrowing Bollinger Bands and flattening moving averages. After a strong bullish candle broke above the Bollinger Upper Band last Friday, prices have retreated over the past two days to test and confirm support at the Bollinger Middle Band, suggesting a resumption of the short-term uptrend. If the pair can sustain above 155, it is likely to retest 158 or even 160. The MACD lines are pulling back near the zero axis, indicating that the adjustment phase is nearing completion. RSI stands at 53, reflecting relatively strong market indecision; support levels lie at 156 and 155. From the 4-hour perspective, the price oscillates around the EMA12 and breaks above the upper trendline of the descending channel, signaling potential to reclaim 157. A golden cross is forming with the signal and MACD lines returning to the 0-axis. A confirmed breakout above and sustained move above the Bollinger Middle Band would reinforce bullish momentum. RSI is at 50, showing prevailing market caution. Buying at lows is currently recommended.

Macroeconomic Regulation! Can USD/JPY Hold Above 156?_1

Macroeconomic Regulation! Can USD/JPY Hold Above 156?_2

Trade Recommendations:

Trade Direction: Buy

Entry Price: 156

Target Price: 160

Stop Loss: 154

Support: 154.7/153.2/150

Resistance: 158/158.8/160

Risk Warnings and Disclaimers

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Warren Takunda

Traders' Opinions

Summary:

EUR/GBP remains under pressure as the Bank of England’s cautious but hawkish easing stance continues to support Sterling, while the euro finds only limited relief from expectations that the ECB’s rate-cut cycle is nearing its end.

SELL EURGBP

EXP

TRADING

0.87250

Entry Price

0.86000

0.88000

0.87194 -0.00026 -0.03%

0.0

Pips

Flat

0.86000

Exit Price

0.87250

Entry Price

0.88000

EUR/GBP traded firmly in negative territory around the 0.8725 handle on Wednesday, extending a run of losses that began earlier in the week and underscoring a shift in short-term sentiment in favour of the Pound Sterling. The cross has struggled to attract meaningful bids as investors digest a subtle but important divergence between the policy outlooks of the Bank of England and the European Central Bank, even as both institutions signal caution rather than urgency.

The immediate catalyst behind Sterling’s resilience has been the Bank of England’s latest policy decision. As widely anticipated, the BoE lowered its benchmark interest rate by 25 basis points to 3.75%, marking its first cut since last summer. While a rate reduction would normally weigh on a currency, the accompanying communication delivered a notably hawkish undertone. Governor Andrew Bailey stressed that the path of rates is likely to be “gradual” and warned that future cuts would become increasingly finely balanced, given that inflationary pressures have not been fully extinguished.

This messaging reinforced the perception that the BoE is not embarking on an aggressive easing cycle. Instead, policymakers appear intent on maintaining restrictive conditions for longer than many had assumed, particularly as wage growth and services inflation remain elevated. In currency markets, that nuance has mattered more than the cut itself, allowing Sterling to outperform both the euro and the US dollar in the near term.

Market pricing broadly reflects this cautious outlook. According to Reuters-based estimates, investors expect at least one additional BoE rate cut in the first half of next year, but see only around a 50% probability of a second move before year-end. That relatively shallow easing profile continues to underpin GBP, acting as a structural headwind for EUR/GBP and limiting the scope for any sustained rebound in the cross.

On the other side of the equation, the euro has found some support from the view that the European Central Bank may be close to the end of its own easing cycle. The ECB left its three key policy rates unchanged at its most recent meeting, the fourth consecutive hold, as officials opted for a wait-and-see approach amid mixed economic signals across the bloc. President Christine Lagarde reiterated that the ECB is in a “good position” and emphasised that policy decisions will remain data-dependent.

Money markets have taken this guidance at face value. Current pricing assigns less than a 10% probability of an ECB rate cut as early as February 2026, suggesting that investors believe most of the easing has already been delivered. In theory, this should help the euro stabilise. In practice, however, it has not been enough to offset the relative appeal of Sterling, particularly as UK data have shown tentative signs of resilience compared with a still-fragile Eurozone growth outlook.

The resulting dynamic has kept EUR/GBP on the defensive, though not in free fall. With liquidity thinning as the year-end holiday period approaches, price action has remained relatively contained. Unless there is a material shift in monetary policy expectations or a significant surprise in macro data, the cross is likely to remain guided by these relative central bank narratives in the near term.

Technical analysis

From a technical perspective, the daily EUR/GBP chart signals a meaningful change in market structure. For several months, the pair traded within a well-defined uptrend, supported by a strong ascending trendline that was repeatedly validated by multiple price rejections. These rebounds, previously viewed as confirmations of a solid demand zone, underpinned a broadly bullish bias.

That structure has now been challenged. Toward the end of December 2025, EUR/GBP broke decisively below the ascending trendline, a development that marked a shift in momentum. The breakout point, where selling pressure began to dominate, has become a key area of focus. Price action is currently testing whether this break will hold.

If the pair fails to reclaim the former trendline, the prior bullish structure would be considered invalidated, opening the door for a deeper corrective move. Under this primary bearish scenario, the immediate downside target sits around 0.86741, a previous horizontal support level that could attract buyers on the first test.

That said, traders should remain alert to the risk of a false breakout, particularly in thinner holiday markets. A sustained move back above the 0.87959 region would negate the bearish signal and suggest that the broader uptrend may yet resume.