- EUR/GBP continues to decline, trading around 0.8415 during Thursday’s early European session, down 0.20% on the day.
- Growing expectations of further rate cuts by the ECB are putting pressure on the Euro.
- BoE Governor Andrew Bailey remains "cautiously optimistic" about easing inflationary pressures in the UK, but he notes it is too early to declare a victory.
- The Eurozone's flash HICP inflation data for August will be closely watched on Friday.
The EUR/GBP cross remains in negative territory for the seventh consecutive day, trading around 0.8415 during Thursday’s early European session. The Euro (EUR) is under pressure against the Pound Sterling (GBP) due to increased speculation that the European Central Bank (ECB) may cut interest rates again in its September meeting.
ECB Governing Council member Klaas Knot indicated on Wednesday that he would wait for more information before deciding on supporting an interest rate cut in September. Nevertheless, markets expect the ECB to lower borrowing costs next month amid easing price pressures and an uncertain economic outlook.
The Eurozone's flash estimate for the Harmonized Index of Consumer Prices (HICP) will be released on Friday. Headline inflation is expected to ease to 2.2% year-over-year in August, down from 2.6% previously, while core CPI inflation is projected to drop to 2.8% year-over-year from 2.9%. A higher-than-expected outcome could boost the Euro and mitigate further declines in EUR/GBP.
Conversely, stronger-than-forecast economic data and optimism about the new Labour government support the GBP. Bank of England (BoE) Governor Andrew Bailey's comments also bolster the Pound. Bailey noted that “policy setting will need to remain restrictive for a sufficiently long time until the risks to inflation remain sustainably around the 2% target in the medium term have further dissipated.” Economists predict one more 25 basis points (bps) rate cut from the BoE this year, according to a Reuters poll.
