The EUR/GBP pair hovered around 0.8540 during the early European session on Wednesday, struggling to extend its recent gains. The cross is poised for potential appreciation as traders anticipate a gradual reduction in interest rates by the European Central Bank (ECB). However, ECB officials remain cautious about committing to a specific timeline for rate cuts due to concerns that inflation could resurge.
Tuesday’s data from the European Monetary Union (EMU) showed no month-on-month change in the Harmonized Index of Consumer Prices (HICP) for July, as expected. The Core HICP declined by 0.2%, mirroring the drop recorded in June.
In the UK, Public Sector Net Borrowing (excluding public sector banks) surged to £3.1 billion in July, more than doubling the £1.3 billion from the same period last year and significantly exceeding market forecasts of £1.5 billion.
The Pound Sterling (GBP) found support as recent UK inflation and employment data strengthened the case for the Bank of England (BoE) to maintain the interest rate at 5.0% in its upcoming September meeting. Rupert Thompson, Chief Economist at IBOSS, remarked, “The BoE is likely to leave rates unchanged at their September meeting, with the next rate cut probably postponed until November.”
Traders are now turning their attention to the upcoming Purchasing Managers Index (PMI) data from the UK, Eurozone, and Germany, set for release on Thursday. These reports are expected to provide critical insights into the economic outlook for both the UK and the Eurozone, potentially influencing future monetary policy decisions by their respective central banks.
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