The EUR/GBP currency pair experienced its largest single-day decline in three weeks on March 15, 2025, plummeting to 0.8520. The sharp drop was triggered by the release of softer-than-expected Eurozone inflation data, which significantly undermined confidence in the Euro and shifted market expectations for European Central Bank (ECB) monetary policy.
The preliminary reading of the Eurozone Harmonised Index of Consumer Prices showed annual inflation cooling to 1.8% in February. This figure fell notably below the ECB's 2% target and consensus forecasts of 2.1%. Key components driving the moderation included a 3.2% year-over-year decline in energy prices, while core inflation (excluding food and energy) eased to 2.3%. Services inflation, a metric the ECB monitors closely, slowed to 3.1% from 3.4% in January.
The immediate market reaction was severe. The EUR/GBP pair broke through key technical support levels, including the 50-day moving average at 0.8565, and approached the psychological barrier at 0.8500. Trading volume surged to 150% of the 30-day average, indicating substantial institutional participation. Analysts estimate approximately €2.5 billion in Euro long positions were unwound during the European session.
The data fundamentally altered interest rate expectations. Money markets now price in a 70% probability of a 25 basis point ECB rate cut at the June meeting, a significant increase from the 40% chance priced in before the release. This growing policy divergence with the Bank of England (BoE), which continues to grapple with more persistent UK inflation at 2.5%, created natural downward pressure on the EUR/GBP cross.
The event highlights a broader theme of central bank policy divergence defining global currency markets in 2025. While the ECB faces pressure to ease policy, the Federal Reserve maintains a "hawkish delay," with officials signaling rates may stay restrictive until late 2026. Concurrently, geopolitical "tariff jitters" from new U.S. import tariffs and safe-haven demand are adding layers of complexity, benefiting assets like gold, which held near $5,190.
Market participants are now focused on upcoming communications from ECB President Christine Lagarde and the bank's updated economic projections at the April policy meeting for further guidance on the timing and magnitude of potential rate adjustments.
