EUR/GBP breaks below 0.8350 as traders expect more ECB rate cuts

• EUR/GBP loses ground as the Euro struggles amid more interest rate cuts by the ECB in the future.
• ECB reduced its Deposit Facility Rate by 25 basis points to 2.75%, with the Main Refinancing Operations Rate sliding to 2.9%.
• The BoE is expected to deliver a 25 basis point interest rate cut in February.

EUR/GBP offers its recent gains from the previous session, trading around 0.8360 during the Asian hours on Friday. The EUR/GBP cross depreciates as the Euro struggles amid increased expectations of further interest rate cuts by the European Central Bank (ECB).

On Thursday, the European Central Bank (ECB) decided to cut its Deposit Facility Rate by 25 basis points (bps) to 2.75%, with the Main Refinancing Operations Rate sliding to 2.9%, as expected. Traders had already priced in a 25-bps interest rate reduction on the assumption that inflationary pressures in the Eurozone are sustainably on track to return to the central bank's target of 2%.

Moreover, the downbeat Eurozone GDP report contributes to the EUR's downside. Preliminary data released by Eurostat on Thursday showed that the Eurozone economy flatlined in the fourth quarter (Q4) of 2024, following a 0.4% expansion in Q3. This reading came in weaker than the expectation of 0.1% growth. Market players will take more cues from a slew of Germany's data including Retail Sales, Unemployment Rate, and Consumer Price Index (CPI) data, which will be released later on Friday.

The downside of the EUR/GBP cross may be limited as the Pound Sterling (GBP) remains under pressure amid expectations that the Bank of England (BoE) will resume its rate-cut cycle at next week's policy meeting. The BoE is anticipated to lower interest rates by 25 basis points (bps) to 4.5% in February, marking its third cut since August, when borrowing costs peaked at 5.25%.