The EUR/GBP currency pair extended its decline to around 0.8550 during the early European session on Monday, as the Euro (EUR) faced pressure from expectations of an earlier-than-anticipated end to the European Central Bank‘s (ECB) easing cycle. Meanwhile, traders are looking ahead to Tuesday’s UK employment report for further direction.
Economists at Bloomberg predict that the ECB will cut its deposit rate once per quarter through the end of 2025. The forecast suggests that the benchmark rate could reach 2.25% by December 2025, following six consecutive quarter-point reductions. This is sooner than previously projected, as earlier forecasts had placed this target for the second quarter of 2026. The accelerated timeline for rate cuts has put downward pressure on the Euro, weakening it against the Pound Sterling (GBP).
On the other side, the GBP is also facing its own pressures. Market participants are anticipating two rate cuts by the Bank of England (BoE) in 2024, with the next monetary policy meeting set for September 19. Currently, there is a 40% chance of a rate cut being implemented during this meeting. Traders are closely watching the upcoming UK labor market data, which could provide new insights into the economy and influence the BoE’s rate decisions.
The UK unemployment rate is expected to rise to 4.5% in June, while average weekly earnings excluding bonuses are projected to drop to 5.4% year-over-year for the three months ending in June. Including bonuses, total earnings are expected to decrease to 4.6% year-over-year. Slower-than-anticipated wage growth could prompt the BoE to maintain its easing stance, potentially limiting the downside for the EUR/GBP cross.
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