We face each other in the Fourth Round of the FA Cup on Friday, with a 20:00 (UK time) kick-off at the Etihad Stadium.
As well as the prestigious cup competition, we are also fighting for the Premier League title with the Gunners.
Guardiola is relishing the challenge ahead on all fronts.
He said: “I think we, as a team, as a club, we need this type of challenge.
“It doesn’t mean [we are] going to catch them, I don’t know right now, I have to adjust a few things but this is a challenge, that’s why it’s nice.
“Was always at the time Liverpool last seasons, now is Arsenal, welcome Newcastle and, of course, other clubs, there’s a lot to fight for titles and qualify for the Champions League next season.”
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Of course, coming up against Arsenal means coming up against Mikel Arteta, his former assistant coach, who he has great respect for.
Talking in his pre-match press conference, Guardiola said working with Arteta at City made him a better boss.
Guardiola initially got the lowdown on Arteta from Lorenzo Buenaventura, City’s fitness coach.
And, after talking about a potential future together, they teamed up with great success from 2016-2019.
Guardiola said it took him less than 30 minutes sitting next to Arteta in the dugout to know he’d got the right man for the job.
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He added: “I remember that the first game we play, I think was against Sunderland, and we play against David Moyes who was there in that moment and he said ‘I know him well, I was in Everton, he do this, he do that, the strategies, the set-pieces’.
“And yeah after 15 minutes, half an hour, I said ‘yeah he is the man, he is the guy, he can help me to anticipate.’
“In the Premier League you need to know him sooner than later but if you have someone like anticipate, acknowledge what does it mean going to Stoke City away or going to every stadium. [He is] a guy who has been many, many years here, a part of that so we start to work together.
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“I don’t know what was my part of him but his influence on me was great, was massive, was so important to become a better, better manager.”
Watch the press conference in the video player above.