EUR/GBP remains on the defensive around 0.8550, focus on ECB rate decision

• EUR/GBP posts modest gains around 0.8550 on Thursday.
• The European Central Bank will keep interest rates unchanged at its January meeting.
• The Bank of England (BoE) will maintain rates on February 1 and begin its rate cutting cycle at its August meeting.
• Investors await the European Central Bank (ECB) rate decision and Christine Lagarde's subsequent press conference.

The crossing EUR/GBP remains on the defensive around 0.8550 during the early hours of the European session on Thursday. The decision on the monetary policy of the European Central Bank (ECB) will be closely monitored by investors. Markets anticipate that the ECB will maintain the status quo at its January meeting. At the time of writing, the cross is trading at 0.8555, virtually unchanged on the day.

The European Central Bank is expected keep interest rates at their current level at its monetary policy meeting on Thursday. According to Reuters, the market has discounted a 60% chance that the first rate cut will occur as early as April. ECB President Christine Lagarde signaled in Davos that the first cut could come in the summer months of 2024. She said she remained reserved and data-dependent in her final outlook.

Regarding the British Pound, The Bank of England (BoE) will maintain rates on February 1 and begin its cutting cycle at the August meeting. Financial markets expect the BoE to cut rates in 2024 as inflation has fallen sharply since peaking at 11.1% in October 2022, the highest rate in four decades.

Looking ahead, markets will closely monitor the ECB's rate decision and take further cues from the press conference. The speech of Lagarde, president of the ECB, could offer some clues about the future path of monetary policy. These developments could provide a clear direction for the EUR/GBP cross.

EUR/GBP technical levels to watch