EUR/GBP reverts early gains as ECB holds rates, UK fiscal woes pressure

• The Euro gives back its early gains to fall below 0.8800 and turn negative for the day against the British Pound.
• The European Central Bank keeps rates unchanged and adopts a confident tone, ruling out further cuts in the near term.
• The United Kingdom faces deteriorating fiscal prospects, as the Office for Budget Responsibility's forecast revision adds pressure on the GBP.

EUR/GBP trades slightly lower on Friday, around 0.8780 at the time of writing, down 0.13% on the day, reverting early daily gains, but maintaining a solid weekly uptrend of about 0.60%. The Euro continues to find support against the British Pound (GBP), which remains under pressure due to mounting concerns over the United Kingdom's (UK) public finances, while upbeat remarks from the European Central Bank (ECB) bolster investor confidence.

On Thursday, the ECB left all three key interest rates unchanged, confirming that monetary policy is now "well-calibrated." President Christine Lagarde emphasized that the central bank is "in a good place" and that the economy is showing signs of improvement, while also acknowledging lingering uncertainty surrounding inflation. On Friday, several ECB Governing Council members echoed Lagarde's message, pointing to a gradually improving outlook and stressing there is no urgency to cut rates further.

Preliminary data released by Eurostat support this cautious stance. Headline Eurozone inflation stood at 2.1% YoY in October, down from 2.2% in September, while core inflation remained steady at 2.4%, slightly above expectations. On a monthly basis, consumer prices rose by 0.2%, reinforcing the view that inflation continues to move closer to the ECB's 2% target.

By contrast, the British Pound remains under pressure after the Office for Budget Responsibility (OBR) revised down its productivity growth forecasts by 0.3% for the next five years, potentially widening the fiscal gap by about £20 billion. This outlook weakens the UK fiscal position and fuels expectations that the Bank of England (BoE) may be forced to cut rates again before year-end.

In the near term, EUR/GBP remains supported by the policy divergence between a confident ECB and a cautious BoE, suggesting the pair could continue consolidating above the 0.8800 level if the current market dynamics persist.