The EUR/GBP cross has been gaining ground around 0.8450 in Thursday’s early European session, showing a 0.35% increase on the day. The expectations for a rate cut by the Bank of England (BoE) seem to be divided, with market players unsure about the direction the central bank will take. The uncertainty surrounding the BoE’s interest rate decision is adding to the volatility in the EUR/GBP exchange rate.
One of the key factors influencing the recent uptick in the EUR/GBP cross is the hotter-than-expected Eurozone inflation data. The increase in inflation has raised doubts about the pace of European Central Bank (ECB) rate cuts this year. Market analysts are closely monitoring the inflation trends in the Eurozone to gauge the future monetary policy decisions of the ECB.
The focus later in the day will be on the Bank of England’s interest rate decision, which is expected to have a significant impact on the GBP and, consequently, the EUR/GBP exchange rate. Market consensus is split over the possibility of a rate cut by the BoE, with some predicting a quarter-point cut and others expecting further reductions before the end of the year. Any unexpected decision by the BoE could lead to selling pressure on the Pound Sterling, benefiting the EUR/GBP exchange rate.
While the Eurozone inflation data has raised doubts about the need for further ECB rate cuts, economists like Frederik Ducrozet from Pictet Wealth Management remain cautious. The ECB has already cut its key lending rates in June and is expected to implement two more reductions before the year-end. Despite the increase in inflation in July, Ducrozet believes that the ECB will maintain a cautious stance towards future rate cuts.
Overall, the interplay between Eurozone inflation data, BoE’s interest rate decision, and ECB monetary policy will continue to impact the EUR/GBP exchange rate in the near term. Traders and investors are advised to closely monitor these key factors to make informed decisions in the forex market.