EUR/GBP trades with caution near two-year low around 0.8250 ahead of ECB policy meet

• EUR/USD stays afloat near the two-year low, around 0.8250, ahead of the ECB policy meeting on Thursday.
• The ECB is expected to cut interest rates by 25 bps to 3%.
• BoE interest rate expectations would be influenced by the employment data for the three months ending October and the CPI data for November.

The EUR/GBP pair trades cautiously near a two-year low around 0.8250 in the North American session on Wednesday. The cross remains vulnerable ahead of the European Central Bank (ECB) monetary policy meeting on December 18.

The ECB is almost certain to cut its Deposit Facility rate by 25 basis points (bps) to 3% as officials are worried about contracting Eurozone business activity and are confident that inflation is under control.

As the ECB is widely anticipated to cut interest rates on Thursday, investors will pay close attention to the interest rate guidance after President Christine Lagarde. Market experts expect Lagarde to deliver somewhat dovish remarks on the assumption that higher import tariffs by US President-elect Donald Trump will impact the Eurozone export sector significantly. Also, the collapse of the German and French coalition governments would result in a delay in the administration’s expenditure plans.

Meanwhile, the Pound Sterling (GBP) remains an outperformer across the board as the Bank of England (BoE) is expected to leave interest rates unchanged at 4.75% in the policy meeting on December 19. Traders see the BoE keeping interest rates at their current levels as officials have remained concerned over price pressures remaining persistent.

Before the BoE meeting, employment data for the three months ending October and the Consumer Price Index (CPI) data for November are due for release, which could influence BoE interest rate expectations.

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The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day, according to data from the Bank of International Settlements. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

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