The EUR/GBP pair continued its downward trajectory for a fourth consecutive session, trading near 0.8310 during Asian hours on Friday. The British Pound (GBP) gained momentum as market participants pared back expectations of another interest rate cut by the Bank of England (BoE) this year.
BoE Hawkish Signals Bolster GBP
Data from last week revealed a rise in underlying price pressures in the UK, bolstering confidence in the Pound. BoE Deputy Governor Clare Lombardelli, speaking on Monday at King’s Business School, emphasized the importance of clearer signs of easing inflation before considering further rate cuts. Lombardelli warned of the challenges posed by wage growth stabilizing at elevated levels of 3.5%-4.0% and the Consumer Price Index (CPI) remaining around 3%, above the BoE’s 2% target. These factors underscore the complexities of monetary policy decision-making amid persistent inflation risks.
The UK’s economic calendar remains light, with few major data releases expected in the near term. The BoE’s Financial Stability Report, due during Friday’s US market session, is unlikely to significantly influence GBP trading dynamics.
Eurozone Challenges Weigh on EUR
The Euro faced headwinds as policymakers from the European Central Bank (ECB) expressed concerns over slowing economic growth in the Eurozone. This has fueled expectations of a rate cut in December, though the market remains divided on the size of the potential reduction.
Attention is now focused on the Eurozone Harmonized Index of Consumer Prices (HICP) data, set to be released later on Friday. Core inflation is projected to rise marginally to 2.8% year-over-year in November from 2.7% in October. This slight uptick could add complexity to the ECB’s decision-making, as officials aim to balance easing measures with rising inflationary pressures.
Outlook for EUR/GBP
The contrasting monetary policy signals from the BoE and ECB have created divergent dynamics for the EUR/GBP pair. The Pound’s strength, driven by reduced rate-cut expectations and persistent inflation concerns in the UK, continues to exert downward pressure on the pair. Meanwhile, uncertainty surrounding the ECB’s next move is likely to keep the Euro subdued.
Technical levels to watch include immediate support near 0.8300, with resistance at 0.8350. Broader sentiment will depend on upcoming inflation data from the Eurozone and any shifts in rhetoric from central bank officials.
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