The EUR/GBP pair continued its downward trend, trading around 0.8345 during the early European session on Wednesday, as expectations grow that the Bank of England (BoE) will adopt a slower pace of rate cuts. This outlook is providing support to the British Pound (GBP) and weighing on the euro in the cross. The BoE’s interest rate decision, set for Thursday, is now in sharp focus.
Markets are anticipating that the BoE will reduce its benchmark interest rate from 5.0% to 4.75% at its upcoming Monetary Policy Committee meeting. This expectation comes amid concerns that increased government spending in the UK could prove inflationary, potentially leading the BoE to slow its rate-cutting trajectory.
“Markets have adjusted their expectations and now foresee two or three rate cuts in 2025, down from earlier forecasts of four or five,” noted Daniela Sabin Hathorn, senior market analyst at Capital.com. “The BoE is expected to cut rates at a more gradual pace compared to the Fed and ECB,” she added.
ECB’s Dovish Stance Eases Inflation Risks, Capping Euro Decline
The European Central Bank (ECB) has already implemented three rate cuts this year as inflationary pressures in the Eurozone have eased more quickly than anticipated. In October, the ECB lowered its deposit rate by 25 basis points, following a drop in inflation to 1.8% in September, below the bank’s 2% target.
However, stronger-than-expected GDP data from the Eurozone may temper further rate cuts, limiting the euro’s downside. ECB President Christine Lagarde and Vice President Luis de Guindos are scheduled to speak later on Wednesday, and their remarks could provide further direction. Any less dovish comments may lend support to the euro, potentially reversing the EUR/GBP’s current decline.
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