The EUR/USD pair exhibited minimal movement, trading at 1.0859, while the GBP/USD pair experienced a decline of 0.2% to reach 1.2706. This drop in the pound followed the release of business activity data on Wednesday, which indicated challenging times ahead for both the eurozone and the UK economies.
In August, German business activity contracted at its fastest rate in over three years. Concurrently, Britain’s business activity also unexpectedly contracted, elevating the specter of a potential recession.
This data has cast doubt on the extent to which both the European Central Bank (ECB) and the Bank of England (BOE) will continue their efforts to raise interest rates in response to inflation.
While ECB President Christine Lagarde had already hinted at a potential pause in ECB actions come September, the BOE was initially widely anticipated to enact another rate hike next month. This was supported by the fact that UK consumer prices surged 6.8% in July, which is over three times the central bank‘s 2% medium-term target for inflation.
However, economists now project that the BOE will likely implement just one more rate increase, bringing the Bank Rate to 5.50% on September 21, as indicated by a Reuters poll. Nevertheless, a notable portion of economists remains steadfast in their belief that rates could rise even further within the year.
