In the European session on Thursday, the EUR/GBP pair witnessed a decline, approaching the 0.8550 mark, fueled by market uncertainty preceding the European Central Bank‘s (ECB) impending interest rate decision scheduled for announcement at 13:15 GMT.
Expectations are widespread that the ECB will maintain its Main Refinancing Operations Rate at 4.5%, marking the fourth consecutive time, alongside keeping the Rate on Deposit Facility steady at 4%.
While the consensus leans towards an unchanged interest rate decision, investor focus remains on insights into the central bank‘s plans for reducing key lending rates. ECB President Christine Lagarde, during a January interview with Bloomberg at the World Economic Forum Annual Meeting in Davos, hinted at potential rate cuts by the Summer. Lagarde, however, cautioned against premature actions, emphasizing that the risks associated with early rate cuts outweigh holding them at their current level.
Analysts anticipate that Lagarde may reiterate the likelihood of rate cuts once there is substantial evidence of inflation returning to the 2% target. Furthermore, she is expected to highlight that certain inflation indicators still surpass the levels preferred by the central bank. The ongoing uncertainty over inflation persists, given the slower-than-desired wage growth, which falls short of the threshold required for achieving price stability.
Across the shared continent, the Pound Sterling strengthens, buoyed by the resilient inflation outlook in the United Kingdom. This resilience permits the Bank of England (BoE) to maintain higher interest rates compared to other central banks within the Group of Seven (G-7) economies. As the UK economic calendar remains relatively light this week, the direction of the EUR/GBP pair will largely be influenced by developments in the Eurozone.
