Anna 
The EUR/GBP pair experienced a halt to its two-day winning streak during early European trading on Thursday, currently hovering around the 0.8600 mark after retracing from a one-week high of 0.8620.
European Central Bank (ECB) Vice President Luis de Guindos voiced concerns on Wednesday, indicating that the euro zone likely entered a recession in the last quarter, with a persistently weak near-term outlook. ECB member Isabel Schnabel, while affirming the central bank’s efforts to control inflation, identified geopolitical tensions as a potential upside risk to inflation. Mario Centeno, another ECB policymaker, suggested a swifter key interest rate cut, challenging the previous expectation of a decision in May.
Market expectations lean towards the ECB implementing interest rate cuts this year, possibly commencing in March or April. However, the anticipation of more aggressive rate cuts by the ECB compared to the Bank of England (BOE) is projected to constrain the upside potential for EUR/GBP.
From the perspective of the British pound, Bank of England (BOE) Governor Andrew Bailey emphasized the importance of maintaining inflation within the 2% target. Bailey highlighted that the UK unemployment rate has not risen, and household incomes have recently increased, providing a cushion against the impact of rising interest rates.
On the economic front, industrial output and economic bulletins from Spain and Italy are slated for release on Thursday. Friday will witness market scrutiny of UK manufacturing production, industrial production, and November monthly gross domestic product (GDP). Additionally, European Central Bank representative Philip Lane is scheduled to speak on Friday, and traders are eyeing this data for potential trading opportunities within the EUR/GBP pair. The intricate dance between economic indicators and central bank policies continues to shape the dynamics of this currency pair.
