During Monday’s European trading session, EUR/GBP edged lower, nearing 0.8540, as the Euro (EUR) displayed a muted response to positive data from the Eurozone’s manufacturing sector. Despite a 0.8% month-on-month increase in seasonally adjusted Industrial Production for February, rebounding from the previous 3.0% decline, the annual index contracted by 6.4%, slightly better than the prior decrease of 6.6%.
The Euro faced headwinds against the British Pound (GBP) following indications from the European Central Bank (ECB) regarding potential policy rate cuts in June, contingent upon the anticipated deceleration in underlying inflation. Gediminas Šimkus, a member of the ECB Governing Council, suggested a probability of more than three rate cuts throughout the year, as reported by Reuters.
Conversely, the Pound Sterling appreciated as market forecasts adjusted to anticipate interest rate cuts by the Bank of England (BoE). Expectations now project a decline in the policy rate to approximately 4.75% by the end of 2024, down from the current rate of 5.25%. This marks a departure from previous forecasts anticipating a drop to 4.5% by December.
Furthermore, hawkish comments from BoE policymaker Megan Greene bolstered the GBP, reinforcing the notion that rate cuts in the United Kingdom (UK) remain distant amidst a heightened risk of persistent inflation.
Market attention now turns to the speech by Sarah Breeden, BoE’s Deputy Governor for Financial Stability, scheduled for the Innovate Finance Global Summit 2024 on Monday. Traders are poised to closely analyze her remarks for insights into the central bank‘s monetary policy stance and its potential implications for currency markets.
