Published: 18 December 2025,07:27
Daily Market Analysis New
Key Takeaways:
*UK CPI cooling to 3.2% clears the way for a likely 25bp BoE rate cut today, while Eurozone inflation at 2.1% keeps the ECB firmly on hold.
*The BoE’s pivot toward easing, combined with lingering stagflation risks and fiscal uncertainty, weakens GBP’s relative appeal.
*A stable ECB stance preserves yield support, positioning EUR/GBP for a gradual upward bias as the rate gap narrows.
Market Summary:
The release of key inflation data ahead of today’s central bank decisions has underscored a growing monetary policy divergence between the Eurozone and the United Kingdom. UK CPI cooled more than expected to 3.2% in November, down from 3.6% the prior month, providing a clear green light for the Bank of England to commence its easing cycle with a widely anticipated 25 basis point rate cut today. In contrast, Eurozone inflation remains anchored at 2.1%, a marginal easing from 2.2%, confirming that price pressures are stabilising at levels consistent with the European Central Bank’s target and unlikely to prompt any immediate policy shift.
This fundamental divergence is reinforcing the Euro’s relative strength against the Pound Sterling. The ECB’s predictable and stable “higher-for-longer” stance contrasts sharply with the BoE’s more challenging position. The UK central bank is not only pivoting toward easing but is doing so against a backdrop of persistent “stagflation” concerns—a combination of sluggish growth and still-elevated inflation—and fiscal uncertainty linked to recent tax hikes, which continue to undermine confidence in the UK’s economic management.
Consequently, while both central bank decisions today are significant, their implications differ markedly. The BoE’s expected cut is viewed as the beginning of a sustained easing cycle, a structural negative for Sterling. The ECB, meanwhile, is expected to maintain its current stance, preserving its yield advantage. This policy divergence suggests the Euro is likely to maintain its upper hand against the Pound over the medium term, with EUR/GBP poised to track a gradual upward trajectory as the interest rate gap between the two economies narrows.
Technical Analysis
The EUR/GBP pair continues to trade within its primary uptrend framework, having successfully defended its key ascending support line despite a corrective decline of over 1.5% in the past month. This resilience suggests the underlying bullish structure remains intact.
The technical picture has been reinforced by a recent breakout above a short-term downtrend channel that had contained the correction. This move indicates that the period of consolidation has likely concluded, with buyers regaining control. The pair’s ability to hold above its primary trendline throughout this pullback further confirms the strength of the foundational support.
The immediate focus is a test of resistance at the 0.8800 level. A decisive daily close above this barrier would signal a resumption of the broader uptrend and likely trigger a move toward the next resistance zone. The pair’s ability to convert this level from resistance to support will be critical for sustaining bullish momentum.
Momentum indicators align with this constructive outlook. The Relative Strength Index (RSI) holds above its mid-point, indicating a continued balance of power in favor of buyers. Simultaneously, the Moving Average Convergence Divergence (MACD) remains above its zero line, supporting the view that bullish momentum, while moderating during the correction, has not been broken.
Resistance level: 0.8800, 0.8860
Support level: 0.8750, 0.8700
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