Dovish signals from the European Central Bank weighed on the euro, and the EUR/GBP exchange rate remained range-bound at low levels.
2026-06-25 15:04:04
On Thursday morning in Europe, the euro continued its recent correction against the pound (EUR/GBP), falling back to around 0.8620 . Cooling market expectations for further interest rate hikes by the European Central Bank (ECB) were the main factor suppressing the euro's performance. At its monetary policy meeting this month, the ECB raised its deposit rate by 25 basis points to 2.25% , in line with market expectations. However, the market was more focused on the policy signals released by ECB President Christine Lagarde than on the rate hike decision itself.
Lagarde stated that while energy price volatility stemming from the Middle East situation could impact eurozone inflation, the European Central Bank (ECB) does not need to react with overly aggressive policy measures. She also pointed out that while the current inflationary shock to the eurozone is not negligible, it is not severe enough to drive a sustained rise in long-term inflation expectations. These remarks were interpreted by the market as a dovish signal. Investors believe that the ECB remains cautious about continuing rapid interest rate hikes, leading the market to lower its expectations for further tightening policies.
Financial markets currently anticipate that the European Central Bank may only have one or two more rate hikes in the coming months, with the next hike expected to be priced in before the end of the year. Compared to previous market expectations of consecutive rate hikes, the current policy path is clearly more moderate. Meanwhile, the recent continued decline in international oil prices has also eased inflationary pressures in the Eurozone. With positive progress in the US-Iran peace process and the restoration of normal shipping traffic in the Strait of Hormuz, large quantities of crude oil have re-entered the international market, leading to a significant drop in energy prices from previous highs.
Lower energy costs suggest that future imported inflation pressures in the Eurozone may ease, reducing the need for the European Central Bank to raise interest rates significantly further. This is one of the key reasons for the recent pressure on the euro. However, the pound also faces uncertainties. Recent political turmoil in the UK, with Prime Minister Keir Starmer announcing his resignation, has sparked market concerns about the future direction of British policy and fiscal planning.
Following Starmer's resignation, the Labour Party will hold new leadership elections, and markets are assessing the fiscal policies that Andy Burnham might implement. Some analysts believe that if the UK government adopts more aggressive fiscal expansion measures and increases the issuance of government bonds, it could put pressure on the UK's fiscal situation and the pound's performance. Therefore, although the euro weakened due to the European Central Bank's dovish stance, UK political risks also limited the pound's gains, resulting in a relatively limited overall decline in EUR/GBP.
The market will now focus on speeches by European Central Bank Chief Economist Philippe Lane and Executive Board member Piero Cipolone. If the two officials reinforce their cautious stance, the euro may continue to face downward pressure; conversely, if they release more positive signals regarding future interest rate hikes, it could provide short-term support for the euro.
From a daily chart perspective, EUR/GBP has recently retreated from its highs and is currently trading around 0.8620 , entering a slightly weaker, range-bound phase. The price action after failing to break through previous highs indicates increasing selling pressure. Key support levels to watch are the psychological level of 0.8600 , with further support at 0.8550 and 0.8500 . Resistance levels to watch are 0.8670, 0.8720, and 0.8780. As long as the price remains above 0.8600, the medium-term outlook remains one of consolidation at higher levels.
From a 4-hour chart perspective, EUR/GBP is showing a short-term downward trend, with the price testing the support area around 0.8600. Short-term moving averages are flattening, indicating a weakening of market direction. If the exchange rate can hold the 0.8600 support and break through the 0.8670 resistance, it may resume its rebound and challenge the 0.8720 area; conversely, if it falls below 0.8600, it may further retrace to around 0.8550 to seek support. Overall, the short-term trend is mainly range-bound, with the market awaiting speeches from ECB officials and developments in UK politics for new directional guidance.
Editor's Summary
The recent decline in EUR/GBP is mainly due to cooling expectations regarding European Central Bank (ECB) policy. Although the ECB has completed its current rate hike cycle, cautious signals from policymakers have led the market to lower its expectations for further tightening. Meanwhile, political turmoil in the UK has limited further gains for the pound, keeping the cross-currency pair trading sideways. In the short term, speeches by ECB officials and changes in Eurozone inflation will be key factors influencing the euro's trajectory, while the UK leadership transition will continue to impact the pound's performance. Investors should pay close attention to the key support level of 0.8600 and the resistance zone above 0.8670, as these levels may determine the next direction of EUR/GBP.
Lagarde stated that while energy price volatility stemming from the Middle East situation could impact eurozone inflation, the European Central Bank (ECB) does not need to react with overly aggressive policy measures. She also pointed out that while the current inflationary shock to the eurozone is not negligible, it is not severe enough to drive a sustained rise in long-term inflation expectations. These remarks were interpreted by the market as a dovish signal. Investors believe that the ECB remains cautious about continuing rapid interest rate hikes, leading the market to lower its expectations for further tightening policies.
Financial markets currently anticipate that the European Central Bank may only have one or two more rate hikes in the coming months, with the next hike expected to be priced in before the end of the year. Compared to previous market expectations of consecutive rate hikes, the current policy path is clearly more moderate. Meanwhile, the recent continued decline in international oil prices has also eased inflationary pressures in the Eurozone. With positive progress in the US-Iran peace process and the restoration of normal shipping traffic in the Strait of Hormuz, large quantities of crude oil have re-entered the international market, leading to a significant drop in energy prices from previous highs.
Lower energy costs suggest that future imported inflation pressures in the Eurozone may ease, reducing the need for the European Central Bank to raise interest rates significantly further. This is one of the key reasons for the recent pressure on the euro. However, the pound also faces uncertainties. Recent political turmoil in the UK, with Prime Minister Keir Starmer announcing his resignation, has sparked market concerns about the future direction of British policy and fiscal planning.
Following Starmer's resignation, the Labour Party will hold new leadership elections, and markets are assessing the fiscal policies that Andy Burnham might implement. Some analysts believe that if the UK government adopts more aggressive fiscal expansion measures and increases the issuance of government bonds, it could put pressure on the UK's fiscal situation and the pound's performance. Therefore, although the euro weakened due to the European Central Bank's dovish stance, UK political risks also limited the pound's gains, resulting in a relatively limited overall decline in EUR/GBP.
The market will now focus on speeches by European Central Bank Chief Economist Philippe Lane and Executive Board member Piero Cipolone. If the two officials reinforce their cautious stance, the euro may continue to face downward pressure; conversely, if they release more positive signals regarding future interest rate hikes, it could provide short-term support for the euro.
From a daily chart perspective, EUR/GBP has recently retreated from its highs and is currently trading around 0.8620 , entering a slightly weaker, range-bound phase. The price action after failing to break through previous highs indicates increasing selling pressure. Key support levels to watch are the psychological level of 0.8600 , with further support at 0.8550 and 0.8500 . Resistance levels to watch are 0.8670, 0.8720, and 0.8780. As long as the price remains above 0.8600, the medium-term outlook remains one of consolidation at higher levels.
From a 4-hour chart perspective, EUR/GBP is showing a short-term downward trend, with the price testing the support area around 0.8600. Short-term moving averages are flattening, indicating a weakening of market direction. If the exchange rate can hold the 0.8600 support and break through the 0.8670 resistance, it may resume its rebound and challenge the 0.8720 area; conversely, if it falls below 0.8600, it may further retrace to around 0.8550 to seek support. Overall, the short-term trend is mainly range-bound, with the market awaiting speeches from ECB officials and developments in UK politics for new directional guidance.
Editor's Summary
The recent decline in EUR/GBP is mainly due to cooling expectations regarding European Central Bank (ECB) policy. Although the ECB has completed its current rate hike cycle, cautious signals from policymakers have led the market to lower its expectations for further tightening. Meanwhile, political turmoil in the UK has limited further gains for the pound, keeping the cross-currency pair trading sideways. In the short term, speeches by ECB officials and changes in Eurozone inflation will be key factors influencing the euro's trajectory, while the UK leadership transition will continue to impact the pound's performance. Investors should pay close attention to the key support level of 0.8600 and the resistance zone above 0.8670, as these levels may determine the next direction of EUR/GBP.
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