EUR/GBP: Positioning Ahead of German CPI and BoE Policy Outlook

The EUR/GBP cross has remained anchored near 0.87 in December 2025, reflecting a delicate balance between the Bank of England's (BoE) gradual policy easing and the European Central Bank's (ECB) cautious stance. As traders and institutions prepare for key macroeconomic catalysts-including German CPI data and BoE policy decisions-the strategic positioning of EUR/GBP appears poised for limited near-term volatility, with long-term stability favored. This analysis explores the interplay of central bank policies, speculative positioning, and economic indicators to assess the cross's trajectory.

BoE's Gradual Easing and Its Implications

The BoE's December 2025 decision to cut its benchmark rate to 3.75% underscores a measured approach to monetary easing. This move, while signaling a dovish tilt, has not spurred significant GBP weakness, as the market has largely priced in the central bank's cautious trajectory. Analysts note that the BoE's incremental adjustments are designed to avoid abrupt market shocks, particularly in light of the UK's fragile inflation outlook. With UK CPI at 3.2% YoY in November 2025, expectations for further rate cuts in 2026 remain firmly entrenched, yet the GBP's underweight speculative positioning- 38% of open interest in short positions-suggests that even a dovish surprise may struggle to drive sustained EUR/GBP gains.

German CPI and Eurozone Dynamics

German CPI data, a critical barometer for the eurozone's inflationary trajectory, is expected to show a 0.2% monthly increase in December 2025. While this reading would represent a modest uptick, it could provide temporary support to the Euro by reinforcing expectations of a more accommodative ECB policy divergence. However, the ECB's current stance-maintaining rates unchanged-limits the Euro's upside potential. Analysts caution that any short-lived strength from stronger-than-expected German inflation data is likely to be offset by the BoE's ongoing easing cycle, keeping EUR/GBP tethered to its 0.87 equilibrium.

Strategic Positioning and Market Sentiment

Speculative positioning for GBP remains heavily skewed toward the short side, with 38% of open interest allocated to bearish bets. This stretched positioning creates a self-fulfilling dynamic: even if the BoE delivers a dovish rate cut, the GBP's underweight status may prevent meaningful depreciation. Historical patterns suggest that such positioning often acts as a buffer against sharp moves, with EUR/GBP likely to oscillate within a narrow range before the BoE's next policy meeting. Furthermore, the cross's recent resilience-rising toward 0.8800 following weaker UK CPI data-highlights the market's growing focus on Germany's economic rebound. With Germany projected to grow by 1.2% annually in 2026 and 2027, the Euro's long-term fundamentals remain cautiously optimistic, though insufficient to disrupt the EUR/GBP's current equilibrium.

Conclusion: A Stable Outlook Amid Policy Divergence

The EUR/GBP's positioning ahead of German CPI and BoE policy decisions reflects a market in equilibrium. While the BoE's gradual easing and Germany's inflation data could generate short-term volatility, the cross's stability is underpinned by speculative positioning and the ECB's policy restraint. For strategic forex positioning, investors may prioritize range-bound strategies around 0.87, with a focus on managing risk ahead of BoE's 2026 rate cuts. As the ECB's policy trajectory remains uncertain and the UK's inflationary pressures persist, the EUR/GBP is likely to remain a low-volatility asset in early 2026.