The EUR/GBP pair traded lower around 0.8375 during early Thursday’s European session as the Euro weakened against the Pound Sterling amid disappointing Eurozone economic indicators. Market attention now turns to Bank of England (BoE) Deputy Governor Sarah Breeden’s scheduled remarks later in the day.
Data from the German Statistics Office on Wednesday revealed that Germany’s unemployment rate held steady at 6.3% in April, while unemployment increased by 34,000—significantly higher than the expected 11,000 rise and the previous month’s 4,000. This soft labor market data bolsters expectations of further European Central Bank (ECB) easing in June, weighing on the shared currency.
ECB Governing Council member Francois Villeroy de Galhau signaled that more rate cuts may be forthcoming, citing limited signs of inflationary pressure. Rothschild Wealth Management analyst Bastian Freitag forecasts a 25 basis-point ECB rate cut next week, reducing the deposit rate to 2.00%.
Conversely, stronger-than-expected UK Consumer Price Index (CPI) inflation and retail sales figures have tempered market expectations for a Bank of England rate cut in August. This shift provides some support to the GBP, acting as a counterforce against EUR/GBP declines.
Reuters reports that investors have lowered the probability of an August BoE rate cut to 40%, down from 60% prior to the inflation data release. Nonetheless, interest rate futures suggest the market still prices in roughly 37 basis points of BoE rate reductions by the end of 2025.
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