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The EUR/GBP cross trades on a flat note near 0.8655 during the early European trading hours on Tuesday. However, the potential upside for the cross might be limited as the Bank of England (BoE) guided that the monetary policy will remain on a gradual downward path, lifting the Pound Sterling (GBP). The preliminary reading of the German Consumer Price Index (CPI) inflation will be published later on Tuesday. 

The UK central bank stated in its last policy meeting of 2025 that the monetary policy will remain on a “gradual downward path” after cutting the interest rates by 25 basis points (bps) to 3.75% in the December policy meeting. This, in turn, could provide some support to the GBP and act as a headwind for the cross. Money markets expect the BoE to deliver at least one rate reduction in the first half of the year and are pricing in nearly a 50% chance of a second cut before the year-end, according to Reuters. 

Rising geopolitical tensions between Ukraine and Russia might weigh on sentiment around the Euro (EUR) against the GBP, as the Eurozone is heavily dependent on Russian oil and natural gas imports. Russia’s defence ministry claimed that Ukraine has targeted Moscow with drones every day of 2026 so far. Ukraine says such attacks aim to disrupt military logistics and energy infrastructure, raise costs for Moscow’s war effort, and respond to repeated Russian missile and drone attacks in the war that Russia launched nearly four years ago. 

Traders will take more cues from the flash reading of the CPI inflation report from Germany later in the day. The German CPI is expected to show an increase of 0.2% MoM in December, while the Harmonized Index of Consumer Prices is projected to show a rise of 0.4% MoM during the same period. Any signs of hotter inflation in Germany could underpin the EUR in the near term. 

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