During early European trading on Thursday, the EUR/GBP pair hovers around 0.8425, reflecting slight losses following the release of the UK’s monthly Gross Domestic Product (GDP) data.
The UK economy exhibited stronger-than-anticipated growth in May, rebounding from April’s stagnation, with GDP expanding by 0.4% month-on-month. This exceeded market expectations of a 0.2% increase, as reported by the Office for National Statistics (ONS) today. The Pound Sterling (GBP) has attracted modest selling pressure in response to the upbeat economic data.
Concerns regarding the Bank of England‘s (BoE) upcoming monetary policy decision have heightened. BoE policymaker Catherine Mann has expressed caution regarding potential rate cuts, citing risks from a resurgence in UK inflation and rapid increases in service sector prices. Mann emphasized that uncertainties surrounding wage dynamics in the UK are expected to persist, necessitating robust policy decisions.
In contrast, BoE policymaker Jonathan Haskell has voiced reluctance towards rate cuts, citing lingering inflationary pressures in the labor market and uncertainties over their future trajectory. Market sentiment now indicates a probability of nearly 60% for a BoE interest rate cut on August 1, marking the first adjustment since 2020.
On the Euro side, European Central Bank (ECB) governing council member Fabio Panett highlighted the possibility of further interest rate cuts, noting that current wage growth, a key driver of inflation, does not justify a change in policy. Traders are increasingly betting on an ECB rate cut later this year, potentially limiting upward momentum for the EUR/GBP cross in the near term.
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