The EUR/GBP exchange rate saw a rebound to 0.8440 during the early European trading hours on Friday. This recovery comes as the Pound Sterling (GBP) experiences a decline, driven by increasing speculation that the Bank of England (BoE) might reduce its interest rates in the coming week.
Market expectations currently peg a 45% likelihood of the BoE implementing a quarter-point rate cut at its policy meeting scheduled for August 1. Analysts at UBS anticipate the central bank will initiate the first 25 basis point reduction in early August, followed by another 25 basis points in November, potentially lowering the interest rate to 4.75% by the end of 2024. UBS experts attribute this forecast to recent economic data, suggesting it could prompt the Monetary Policy Committee (MPC) to ease rates.
Conversely, waning business confidence in France and Germany has intensified speculation about the European Central Bank (ECB) potentially lowering rates in September. The decline in business sentiment signals a looming economic downturn in the Eurozone’s largest economies. On Thursday, the German IFO Institute reported a drop in business confidence from 88.6 in June to 87 in July—its lowest level since February and below economists’ predictions of 88.9.
Investors will be closely watching the preliminary Eurozone Gross Domestic Product (GDP) data for the second quarter (Q2) for further insights. The quarterly GDP is anticipated to show a 0.2% growth, down from the previous 0.3% expansion.
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