EUR/GBP holds position above 0.8400 ahead of German spending plan vote

• EUR/GBP remains steady ahead of Tuesday's critical German spending plan vote.
• The CDU/CSU bloc, led by election winner Friedrich Merz, is expected to secure the required two-thirds parliamentary majority.
• The Bank of England is expected to keep interest rates unchanged, aiming to balance sluggish economic growth with inflation risks.

EUR/GBP remains largely unchanged for the second consecutive session, hovering around 0.8410 during Asian trading hours on Tuesday. The currency cross maintains its position as the Euro remains stable from traders' optimism ahead of the crucial German spending plan vote due later in the day.

The conservative CDU/CSU bloc, led by election winner Friedrich Merz, is expected to secure the two-thirds parliamentary majority needed to pass proposed reforms. These include exempting defense spending from debt limits and establishing a €500 billion infrastructure investment plan, which is likely to pass in both Germany's lower and upper houses.

On the monetary policy front, traders have scaled back expectations for European Central Bank (ECB) rate cuts this year, now pricing in only two reductions, likely in April and June. Additionally, interest rates are no longer expected to drop below 2%.

The EUR/GBP cross faces potential pressure as the Pound Sterling (GBP) strengthens on expectations that the Bank of England (BoE) will maintain its interest rates at Thursday's policy meeting. The BoE's cautious stance seeks to balance sluggish economic growth with persistent inflation risks.

In February, the central bank lowered rates to 4.5% and revised its 2025 growth forecast downward to 0.75%, citing concerns over tax increases and global trade uncertainties. Investors will closely watch the monetary policy statement and BoE Governor Andrew Bailey's press conference for insights into the economic and monetary policy outlook.