In the Asian session on Wednesday, the EUR/GBP pair halted its five-day winning streak, retreating to near 0.8560. The Pound Sterling (GBP) exhibited strength against the Euro (EUR), fueled by optimistic remarks from Bank of England (BoE) Governor Andrew Bailey.
Governor Bailey, alongside fellow policymakers, testified before the United Kingdom Parliament on Tuesday. While acknowledging that speculation about interest rate cuts this year was not unfounded, Bailey emphasized positive indicators pointing to the British economy’s recovery from the late 2023 recession. He also noted the possibility of rate cuts preceding inflation dipping below 2%, refraining, however, from providing a specific timeline.
BoE Deputy Governor Ben Broadbent underscored that both wage growth and services inflation were double the rate, aligning with sustainable inflation at 2%. Broadbent further stated that the focus has shifted from the extent of restrictive monetary policy to its duration, asserting that current data does not support rate cuts at this stage.
The pressure on the EUR/GBP cross is attributed to challenges facing the Euro, potentially stemming from market caution amid reduced prospects for early global interest rate cuts. Nevertheless, China’s decision to reduce its five-year Loan Prime Rate (LPR) by 25 basis points (bps) to support its economy may provide some backing to the Euro, given the close trade relations between China and the Eurozone.
Traders are preparing for potential volatility surrounding the upcoming release of Purchasing Managers Index (PMI) data from both the Eurozone and the United Kingdom on Thursday. ECB President Christine Lagarde emphasized the importance of wage data in determining the timing of monetary easing measures. The complex interplay of global economic factors continues to influence currency dynamics in the EUR/GBP pair.
