The EUR/GBP cross has seen a decline around 0.8595 in the early European session on Friday following the release of positive economic data from the UK. The official announcement that the UK economy is out of recession came after reports showed that the GDP grew by 0.6% QoQ in Q1. This growth exceeded market expectations of a 0.4% expansion, indicating a strong recovery in the UK economy.
The Bank of England (BoE) recently decided to keep its borrowing costs on hold at 5.25% for the sixth consecutive meeting, but left the door open for a potential rate cut in the near future. BoE Governor Andrew Bailey stated that a rate cut next month was a possibility, pending further data on inflation, activity, and the labor market. The BoE Chief Economist, Huw Pill, expressed confidence in the potential easing of monetary policy over the coming meetings, although more data is necessary to make a final decision.
On the Euro front, European Central Bank (ECB) Vice President Luis de Guindos emphasized that the ECB has not committed to any decisions beyond its planned June rate cut. Despite acknowledging the transparency of the June decision, Guindos did not provide clear guidance on the central bank’s future actions. Additionally, ECB Council member Robert Holzmann warned that unexpected oil price shocks could delay the interest rate turnaround scheduled for June.
EUR/GBP Exchange Rate Reaction
As a result of the positive UK GDP growth and the uncertainties surrounding the monetary policies of both the BoE and the ECB, the EUR/GBP exchange rate experienced a decline, breaking a three-day winning streak. The upbeat economic data from the UK, combined with the potential for a rate cut in the UK and the Eurozone, has influenced the market sentiment and led to a decrease in the value of the Euro relative to the British Pound.
The interplay between economic data releases, central bank monetary policies, and market expectations plays a crucial role in driving movements in the EUR/GBP exchange rate. Traders and investors should closely monitor these factors to make informed decisions in the foreign exchange market.