Key Takeaways:
A rare bearish chart pattern in EUR/GBP suggests the cross could break below 0.85 after the European Central Bank delivers its first rate hike in two years on Thursday.
The European Central Bank is set to raise its deposit rate by 25 basis points to 2.25% on Thursday, its first increase since 2024, but the EUR/GBP cross has already priced in the move — leaving it vulnerable to a breakdown from a rare chart formation that has historically preceded sharp declines.
"The ECB is in a difficult position — it needs to hike to contain energy-driven inflation, but the Eurozone economy remains fragile," said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management. "The forward guidance will matter more than the rate decision itself."
The EUR/GBP pair traded at 0.8627 on Thursday, down from a 2025 high of 0.8865, as traders positioned for the divergence between ECB and Bank of England policy paths. Over 90% of economists surveyed by Reuters expect the 25-basis-point increase, which would bring the deposit facility rate to 2.25%, with the main refinancing operations rate rising to 2.40% and the marginal lending facility to 2.65%. All three rates have been unchanged since April 30, after the last adjustment — a 25-basis-point cut effective June 11, 2025.
If the ECB delivers a dovish surprise — or if President Christine Lagarde signals a one-and-done hike rather than the start of a tightening cycle — EUR/GBP could break below key support near 0.8580, a level that has held since March. A breakdown would open the path toward 0.8450, the lowest since September 2024, according to technical analysts tracking the formation.
The chart pattern in focus
The rare formation — a descending triangle with a flat support base and declining peaks — has emerged on the daily chart over the past three months. The pattern typically resolves with a downside breakout, and the measured-move target points to a decline of roughly 2% from current levels, consistent with a move toward 0.8450. The last time a similar structure appeared in EUR/GBP was in the first quarter of 2024, preceding a 3.2% drop over the following six weeks.
What Lagarde says next matters most
Futures markets have fully priced Thursday's expected hike, meaning the announcement alone is unlikely to move the cross significantly. The real catalyst will come from Lagarde's press conference at 2:30 p.m. Frankfurt time and the ECB's updated economic projections.
The ongoing conflict in Iran has sent energy costs surging across Europe, creating second-round inflationary effects that the ECB cannot ignore. Rising energy prices ripple through supply chains, push up food costs, and eventually embed themselves in wage demands. The central bank's updated staff projections are expected to show higher inflation forecasts for 2026 and 2027, which could justify a more aggressive tightening path.
Analysts are already speculating about a follow-up increase as early as September. If Lagarde leaves the door open to consecutive hikes, EUR/GBP could find temporary support. But if she emphasizes the uncertainty of the outlook and the fragility of Eurozone growth, the pair may break lower.
The BoE factor
The Bank of England's own policy decision, due next week, adds another layer of complexity. The BoE has maintained a relatively hawkish stance, with markets pricing a slower easing cycle compared to the ECB. That rate differential has been a key driver of EUR/GBP's decline from the 0.8865 high, and any hawkish surprise from the BoE would amplify downside pressure on the cross.
Money markets currently price the BoE's first rate cut for the fourth quarter of 2026, later than the ECB's expected second half of the year, giving sterling a yield advantage that has weighed on the euro.
This article is for informational purposes only and does not constitute investment advice.
