The EUR/GBP pair extended its downward trend for a second consecutive session on Wednesday, trading near 0.8330 during early European hours. The decline is driven by a firmer Pound Sterling (GBP) as market expectations for a Bank of England (BoE) rate cut in December diminish, contrasting with rising expectations for further easing by the European Central Bank (ECB).
Pound Gains on BoE’s Cautious Policy Stance
The Pound Sterling has found support from a growing consensus among BoE policymakers for a measured approach to monetary easing. Deputy Governor Clare Lombardelli indicated on Tuesday that more concrete evidence of moderating inflation is needed before endorsing further rate cuts. While acknowledging potential risks to economic growth from US trade tariffs, Lombardelli emphasized that it is too early to gauge their full impact.
This cautious tone has dampened speculation of an imminent rate cut, boosting the GBP against its Euro counterpart.
Eurozone Faces Rate Cut Expectations and Economic Pressures
In contrast, the Eurozone appears poised for further monetary easing. Markets have fully priced in a 25-basis-point rate cut by the ECB in December, with the probability of a larger 50 bps cut now at 58%. This reflects increasing concerns about the region’s economic outlook.
Additionally, renewed US tariff threats from President-elect Donald Trump targeting China, Mexico, and Canada have amplified fears of economic spillovers into Europe, putting further strain on the Euro.
Market Focus on Upcoming Data
Investors are now turning their attention to key economic data from both regions. The Eurozone Harmonized Index of Consumer Prices (HICP) inflation report, due Friday, is expected to show annualized increases in both headline and core inflation for November. These figures could heighten concerns about the ECB’s ability to navigate rising inflation amid weak growth.
Simultaneously, the Bank of England’s Financial Stability Report, also scheduled for release this week, will provide insights into the UK’s financial health and potential monetary policy adjustments.
Technical Outlook: EUR/GBP Weakness Persists
The EUR/GBP pair remains under bearish pressure, with immediate support seen near the 0.8300 level. A sustained break below this threshold could open the door for further declines towards the 0.8250 region. On the upside, resistance is expected at 0.8375, with a move above this level required to challenge the 0.8400 mark.
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