During early European trading on Friday, the EUR/GBP cross fell to approximately 0.8485. This decline is attributed to reduced expectations for a Bank of England (BoE) interest rate cut in September, following positive Purchasing Managers’ Index (PMI) reports that have bolstered the Pound Sterling (GBP).
A recent survey revealed that UK business activity experienced its strongest growth in four months, coupled with cooling price pressures. The S&P Global Composite PMI rose to 53.4 in August from 52.8 in July, surpassing the forecast of 52.9. This upbeat data has tempered investor expectations for a BoE rate cut next month, leading to a stronger GBP against the Euro (EUR). Following the PMI release, financial markets have reduced the likelihood of a BoE rate cut in September to less than 30%.
In contrast, the Euro is under pressure following the European Central Bank’s (ECB) decision to keep interest rates unchanged at its July meeting. The ECB’s meeting minutes, released on Thursday, suggested a potential rate reduction later this year. Market expectations now reflect a 90% probability of a 25 basis point cut in the deposit rate to 3.5% in September, with at least one more reduction anticipated before year-end. This outlook has exerted downward pressure on the Euro.
ECB Governing Council member Martins Kazaks has indicated readiness to discuss another rate cut at the September meeting, expressing confidence in inflation returning to 2% while also voicing concerns about the economy.
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