During Monday’s European trading hours, EUR/GBP continued its upward trajectory for the third consecutive session, hovering around 0.8530. The appreciation of this currency pair is primarily attributed to the release of the HCOB Eurozone Manufacturing PMI, which saw an increase to 47.3 in May from 45.7 in April, albeit slightly below the preliminary estimate of 47.4. This uptick marks the highest reading since March 2023, signaling a deceleration in the decline of the Eurozone manufacturing sector, a trend observed for over a year.
Investor sentiment regarding the European Central Bank‘s (ECB) monetary policy stance remains pivotal, with expectations rife for an interest rate cut announcement on Thursday. However, speculation suggests that the ECB may signal a pause in rate reductions after June, with a potential slowdown in the pace of cuts in the ensuing months. Market indicators indicate the pricing in of nearly 25 basis points (bps) of ECB rate reductions in June and 57 bps of cuts throughout 2024, according to Reuters.
Attention will be keenly focused on ECB President Christine Lagarde’s forthcoming press conference, where market participants anticipate fresh signals regarding the trajectory of rate cuts post-June. Any dovish sentiment conveyed by the ECB could exert downward pressure on the Euro and pose challenges for the EUR/GBP cross.
Across the Channel, uncertainty persists among investors regarding the Bank of England‘s (BoE) stance on rate cuts. Despite a significant drop in UK annual headline inflation to 2.3% in April, BoE policymakers remain apprehensive about the sluggish progress in disinflation within the services sector. Notably, according to a Citi/YouGov survey, UK public inflation expectations for the next 12 months declined to 3.1% in May, marking the lowest level since July 2021, as reported by Reuters on Friday.
Against this backdrop, the outlook for the EUR/GBP pair remains influenced by evolving central bank policies, economic data releases, and market sentiment, with investors poised to react to developments on both sides of the English Channel.
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