The EUR/GBP pair has retreated from its recent highs, trading around 0.8520 during early European trading on Tuesday. This movement reflects investor expectations that the European Central Bank (ECB) may gradually reduce interest rates, despite ECB policymakers’ reluctance to commit to a specific rate-cut trajectory due to concerns over potential reaccelerating inflation.
Germany’s Producer Price Index (PPI) showed a year-over-year decline of 0.8% in July, consistent with market expectations, following a 1.6% decrease in the previous month. The monthly PPI edged up by 0.2%, also aligning with forecasts. Investors are now shifting their attention to the upcoming release of the Harmonized Index of Consumer Prices (HICP) data from the European Monetary Union (EMU), which is expected later today.
In the UK, recent inflation and employment reports have reinforced the likelihood that the Bank of England (BoE) will maintain its current interest rate of 5.0% at its September meeting. UK Finance Minister Rachel Reeves highlighted the challenges posed by the latest economic data, stressing the need for difficult decisions to improve the country’s economic fundamentals, as reported by Reuters.
Rupert Thompson, Chief Economist at IBOSS, suggested that the BoE is likely to keep rates unchanged in September, with a potential rate cut delayed until November. This expectation of further rate cuts could exert downward pressure on the Pound Sterling (GBP) in the near term.
Traders will be closely watching the upcoming Purchasing Managers Index (PMI) data from the Chartered Institute of Procurement & Supply and S&P Global, set for release on Thursday. This report may provide additional insights into the UK’s economic conditions and influence the BoE’s future policy decisions.
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