The EUR/GBP currency pair remained in negative territory for the seventh consecutive day, trading near 0.8415 during the early European session on Thursday. This ongoing decline is largely attributed to heightened expectations that the European Central Bank (ECB) will implement another interest rate cut at its September meeting.
ECB Governing Council member Klaas Knot indicated on Wednesday that he would await additional information before deciding on supporting a rate reduction next month. Nevertheless, market sentiment leans towards an anticipated cut in borrowing costs due to easing price pressures and an uncertain economic outlook.
On Friday, the Eurozone’s flash estimate for the Harmonized Index of Consumer Prices (HICP) will be released. It is projected that headline inflation will decrease to 2.2% year-over-year (YoY) in August, down from 2.6% in the previous reading. Core CPI inflation is expected to fall to 2.8% YoY from 2.9% in the prior report. A stronger-than-expected inflation outcome could potentially bolster the Euro and limit the decline of EUR/GBP.
Conversely, recent stronger economic data and optimism regarding the new Labour government have supported the Pound Sterling (GBP). Bank of England (BoE) Governor Andrew Bailey’s comments also lend support to the GBP. Bailey emphasized that monetary policy needs to remain restrictive for a sufficient period to ensure inflation risks are sustainably aligned with the 2% target in the medium term, indicating a steady policy path. Economists, according to a Reuters poll, anticipate one more 25 basis point (bps) rate hike from the BoE this year.
Related Topics:
