EUR/GBP rises toward 0.8300 following HCOB Manufacturing PMI from Eurozone

• EUR/GBP remains solid after the HCOB Manufacturing PMIs released from the Eurozone and Germany.
• Traders await S&P Global/CIPS Manufacturing PMI for the United Kingdom due on Thursday.
• HCOB Eurozone Manufacturing PMI dropped to 45.1 in December from the previous reading of 45.2.

EUR/GBP extends its gains for the second successive day, trading around 0.8280 during the European session on Thursday. The EUR/GBP cross appreciates as the Pound Sterling (GBP) faces challenges due to a mild increase in the Bank of England's (BoE) dovish bets in 2025.

The BoE Governor Andrew Bailey signaled a “gradual” approach to interest rate cuts “remains right,” pushing back against market bets on fewer rate cuts in the coming year. Additionally, Bailey added that the uncertainty surrounding the geopolitical risks and trade policies ahead of Donald Trump’s return to the White House could weigh on the already-slowing UK economy.

On the data front, the non-seasonally adjusted Nationwide House Price Index in the United Kingdom (UK) rose by 4.7% year-on-year in December 2024, the fastest pace since October 2022, following a 3.7% increase in November and exceeding forecasts of 3.8%. Meanwhile, house prices grew 0.7% month-over-month, slowing from 1.2% in November but significantly outpacing expectations of 0.1%.

Furthermore, traders have shifted their focus to the Manufacturing Purchasing Managers Index (PMI) by both the Chartered Institute of Procurement & Supply and S&P Global scheduled to be released later in the day.

In the Eurozone, the HCOB Manufacturing PMI revealed a slight decline in goods production, dropping to 45.1 in December from the previous reading of 45.2. Similarly, Germany's manufacturing sector remains subdued, with the PMI unchanged at 42.5, in line with expectations.

The upside of the EUR/GBP cross could be limited as the Euro struggles as the European Central Bank (ECB) maintains dovish guidance on interest rates policy for this year. The ECB reduced its Deposit Facility rate by 100 basis points (bps) to 3% in 2024 and is expected to lower it further to 2%—considered the neutral rate—by the end of June 2025. This indicates that the ECB will likely cut its key borrowing rates by 25 bps at each meeting during the first half of this year.

ECB President Christine Lagarde said on Wednesday that the central bank aims to achieve its 2% inflation target by 2025. Lagarde stated, “We made significant progress in 2024 in bringing down inflation, and we are hopeful that 2025 will be the year we reach our target, as expected and aligned with our strategy.” She added, “Of course, we will continue our efforts to ensure that inflation stabilizes sustainably at the 2% medium-term target.”