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The EUR/GBP pair trades vulnerably near the five-month low of 0.8620 during the early European trading session on Tuesday. The cross has come under pressure ahead of monetary policy announcements by both the European Central Bank (ECB) and the Bank of England (BoE) on Thursday.

Investors expect both central banks to leave interest rates at their current levels. The ECB is seen holding its Deposit Facility Rate steady at 2% as inflation in the Eurozone region has remained close to the central bank’s 2% target.

Ahead of the ECB’s monetary policy announcement, investors will focus on the preliminary Eurozone Harmonized Index of Consumer Prices (HICP) data for January, which will be released on Wednesday. The headline HICP is expected to have risen at an annualized pace of 1.7%, slower than 1.9% in December. In the same period, the core HICP – which excludes volatile components like food, energy, alcohol, and tobacco – is estimated to have grown steadily by 2.3%.

Meanwhile, the BoE is seen leaving borrowing rates unchanged at 3.75% as the impact of previous interest rate cuts is yet to flow into the economy. Also, the United Kingdom (UK) central bank reduced interest rates by 25 basis points (bps) in the December policy meeting and reiterated that the monetary policy is on a “gradual downward path”.

A higher-than-projected increase in the UK Consumer Price Index (CPI) data for December is also expected to discourage BoE officials from delivering back-to-back interest rate cuts. In December, the headline inflation accelerated to 3.4% from 3.2% in November after slowing down for two months.

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