EUR/GBP pulls back below 0.8700 amid broader Euro weakness

• EUR/GBP fails to find acceptance above 0.8700 and dips to the 0.8690 area.
• The pair is on track for its first weekly appreciation in the last two months.
• ECB-BoE monetary policy divergence boosted the Euro on Thursday.

The Euro (EUR) failed to hold above 0.8700 against the British Pound (GBP) on Friday and pulled back to session lows near 0.8685 in the early European session. The pair, however, remains on track to close its first positive week in two months, fuelled by the ECB-BoE policy divergence.

The Bank of England (BoE) left its Repo Rate unchanged at 3.75%, as widely expected, on Thursday, but in a closer-than-expected call, with four policymakers voting for a rate cut, instead of the two expected by the market.

Beyond that, the bank’s governor, Andrew Bailey, showed confidence that inflation will reach the 2% target sooner than expected, which suggests that more rate cuts are in the pipeline.

The European Central Bank left interest rates on hold as well, but President Christine Lagarde stuck to the message that monetary policy is in a “good place” and downplayed the risk to inflation from a strong Euro, hinting at steady interest rates for the foreseeable future. The Euro rallied nearly 0.7% on Thursday following the central bank decisions.

The pair is trimming some gains on Friday following downbeat German Industrial Production figures. Data released by Destatis showed that factory output fell 1.9% in December, well beyond the 0.3% consensus decline, and November’s figures have been revised down to a 0.2% growth, from previous estimations of a 0.8% increase.

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