CFD Trading Rate Euro vs Great Britain Pound (EURGBP)

• EUR/GBP attracts some buyers near 0.8540 after the UK labor market and German CPI data. 
• The UK ILO Unemployment Rate rose to 3.9% in three months to February vs. 3.8% prior, worse than expected. 
• The German Harmonized Index of Consumer Prices (HICP) came in at 0.6% MoM and 2.7% YoY in February, as expected. 
• Traders will shift their attention to the UK monthly Gross Domestic Product (GDP), due on Wednesday.

The EUR/GBP cross holds positive ground below the mid-0.8500s during the early European trading hours on Tuesday. The cross edges higher following the UK Labor market and German inflation data. The cross currently trades around 0.8540, gaining 0.16% on the day. 

The latest data released from the UK Office for National Statistics on Tuesday showed that the ILO Unemployment Rate came in worse than expected, rising to 3.9% in the three months to February from 3.8% in the previous reading. Meanwhile, the number of people claiming jobless benefits rose by 16.8K in February from a gain of 3.1K in January. The UK Employment Change came in at -21K in January, versus a 72K increase in December.

On the Euro front, the German Consumer Price Index (CPI) report for February was in line with the market estimation. The CPI figure remains steady at 0.4% MoM and 2.5% YoY in February. The Harmonized Index of Consumer Prices (HICP) arrived at 0.6% MoM and 2.7% YoY in February, as expected. 

Looking ahead, the UK monthly Gross Domestic Product (GDP), Industrial Production, Manufacturing Production, and Trade Balance for January will be released on Wednesday. Traders will take cues from the data and find trading opportunities around the EUR/GBP cross. 

EUR/GBP dived on Friday and is trading close to the 0.8500 lows. Economists at ING analyze the Pound Sterling (GBP) outlook.

Key data tests for the strong Pound

EUR/GBP dip buyers emerge ahead of psychological support of 0.8500. Economists at Société Générale analyze the pair’s technical outlook.

Failure to overcome 0.8580 can denote risk of one more down leg

• EUR/GBP weakens after several ECB officials talk up the possibility of an early rate cut. 
• Francois Villeroy de Galua and Joachim Nagel talk of spring rate cut, putting April back on the table. 
• The technical outlook turns more bearish as price sinks back down towards February’s lows. 

The Euro (EUR) is sinking, trading in the 0.8510s against the Pound Sterling (GBP) on Friday, after two leading members of the European Central Bank's (ECB) Governing Council (GC) voiced approval for a spring rate cut. 

Their dovish views clash with the more cautious stance of the ECB President Christine Lagarde, who said on Thursday, that June would be the next key date for reviewing policy on interest rates. 

Spring can be anytime from “April to June” says De Galau

Francois Villeroy de Galau, Governor of the Bank of France and GC member, said a rate cut in spring was now “very likely” on Friday, adding, “spring goes from April to June.” 

His ECB colleague, Bundesbank President Joachim Nagel, said "The probability is increasing that we could see an interest-rate cut before the summer break," adding, "This will be data dependent, but the prospects have brightened." According to a report on Poundsterlinglive.com. 

The comments led to broad based weakness for the Euro as lower interest rates reduce the attractiveness of a currency as a place for foreign investors to park their capital.  

Technical Analysis: Price sinking to key support 

EUR/GBP’s long-term technical outlook is sideways with a slight bearish bias in the intermediate and short-term. 

Given the overall bearish theme of the charts the price will probably continue sinking to the key support level at 0.8493. A break below that would turn the picture much more bearish.

Euro vs Pound Sterling: Daily chart

There are some signs of a possible recovery, however, if price stabilizes. 

The Moving Average Convergence/ Divergence (MACD) is converging bullishly with price action suggesting the downtrend may be losing momentum. .

An Inverse Head and Shoulders pattern could be forming, although the chances are diminishing as the market continues falling. For confirmation of the pattern, price would have to break above what is known as “the neckline” which is drawn as a resistance line at the highs. On EUR/GBP the neckline is at 0.8750. Such a break could be followed by a rise of either the same length as the height of the pattern extrapolated higher, or a Fibonacci 61.8%. 

Given the confluence of resistance from the 100 and 200-day Simple Moving Averages (SMA) at around 0.8615, as well as resistance from the trendline nearby, this zone provides a potential conservative estimate for the pattern.

• EUR/GBP falls after Eurozone growth is expected to slow in 2024 whilst UK growth revised up. 
• ECB concludes its March policy meeting and in the UK the Chancellor delivers the spring budget. 
• The technical outlook is bearish but with important caveats. 

The Euro (EUR) is down over a tenth of a percent, trading in the 0.8540s against the Pound Sterling (GBP) on Thursday, on the back of diverging growth forecasts for the Eurozone and UK economy. 

EUR/GBP slides on diverging growth stories 

In Frankfurt, the European Central Bank (ECB) concluded its March policy meeting and announced its decision to keep interest rates unchanged. The ECB staff projections, however, indicated lower growth and inflation going forward, with the growth rate projected to average 0.6% for the region in 2024, and inflation 2.3%. This was below the 0.8% and 2.7% respectively of the ECB’s previous forecasts. 

Across the channel in Britain, the UK’s Chancellor of the Exchequer, Jeremy Hunt, was sounding more optimistic, however. In his spring budget, presented to the House of Commons, Hunt estimated the UK economy growing by 0.8% in 2024 – stronger than the 0.7% forecast by the Office for Budget Responsibility (OBR) in November. Whilst Hunt may not be an independent source the forecast revision may still have bolstered GBP in the short-term. 

The outcome appears to have been a slight depreciation of the Euro against the Pound as reflected in the EUR/GBP exchange rate. 

Technical Analysis: Possible Inverse Head and Shoulders

The long-term technical outlook for the pair is sideways with a slight bearish bias in the intermediate and short-term. 

At the same time, there are some signs on the daily chart indicating that the pair has the potential to reverse the bearish trend and recover. It is too early to say for sure, however, and confirmation from price action first would be required to alter the bearish outlook. 

Euro vs Pound Sterling: Daily chart

The first hint is that the Moving Average Convergence/ Divergence (MACD) is converging bullishly with price action, suggesting the possibility of a recovery on the horizon.

Price made a lower low in February compared to December 2023, but the MACD failed to reflect this and made a higher low on the second trough in February instead. This nonconfirmation and convergence between the indicator and the exchange rate is a bullish sign. 

Another bullish sign is that EUR/GBP may have formed a bottoming pattern called an Inverse Head and Shoulders (H&S) in January and February. This could be a sign the market may be reversing on the intermediate time frame. 

If an inverse H&S is forming then it will break higher if price confirms the pattern by pushing above what is known as “the neckline”. The neckline is drawn as a resistance line at the highs. On EUR/GBP this is at 0.8750. 

A break above the neckline could be followed by a rise of either the same length as the height of the pattern extrapolated higher, or a Fibonacci 61.8%. 

Given the confluence of resistance from the 100 and 200-day Simple Moving Averages (SMA) at around 0.8615, as well as resistance from the trendline nearby, this zone provides a potential conservative estimate for the pattern, although it may well go higher if accompanied by a major shift in fundamentals. 

• EUR/GBP drops to 0.8550 as Euro drops amid caution ahead of the ECB’s policy decision.
• The ECB is expected to keep the key lending rate at 4.5%.
• The Pound Sterling strengths on UK’s stubborn inflation outlook.

The EUR/GBP pair slumps toward 0.8550 in the European session on Thursday amid uncertainty ahead of the European Central Bank's (ECB) interest rate decision, which will be announced at 13:15 GMT.

The ECB is widely anticipated to keep its Main Refinancing Operations Rate unchanged at 4.5% for the fourth time in a row and the Rate on Deposit Facility at 4%.

While an unchanged interest rate decision from the ECB is widely anticipated, investors would like to know when the central bank will start reducing key lending rates. In an interview with Bloomberg in January on the sidelines of the World Economic Forum (WEF) Annual Meeting in Davos, ECB President Christine Lagarde commented that rate cuts are likely by the Summer. However, she warned that risks of premature rate cuts would be higher than holding them for longer at their current level.

ECB Lagarde might reiterate that rate cuts are likely after getting evidence that inflation will return to the 2% target. Lagarde is expected to warn that some inflation indicators are still higher than the level the central bank wants to see them. The uncertainty over inflation remains high as the slowdown in wage growth is lower than the level, which should be consistent with achieving price stability.

In the shared continent, the Pound Sterling strengthens on sticky United Kingdom’s inflation outlook, allowing the Bank of England (BoE) to keep interest rates higher for longer than other central banks in the Group of Seven (G-7) economies. The EUR/GBP pair will be guided by action in the Euro as the UK economic calendar is light this week.

Economists at ING analyze the Pound Sterling (GBP) outlook after Chancellor of the Exchequer Jeremy Hunt delivered the Spring Budget.

Budget has not moved the needle

• EUR/GBP finds support as monthly Eurozone Retail Sales grew by 0.1% as expected.
• The ECB is expected to keep key lending rates unchanged at 4.5% on Thursday.
• The Pound Sterling will dance to the tunes of UK Spring budget.

The EUR/GBP pair finds some buying interest around 0.8550 as the Eurozone Retail Sales data for January remains better than expectations. The Eurostat reported that monthly Retail Sales grew by 0.1% as expected. In December, the Retail Sales were down by 0.6%. The annual Retail Sales contracted at a slower pace of 1.0% against 1.3% decline expected by market participants.

While the pace of decline in Retail Sales was slower than expectation, it cannot be denied that individuals are facing the cost-of-living crisis due to higher interest rates by the European Central Bank (ECB) and sticky price pressures.

Market participants remain uncertain about when the ECB will start reducing interest rates as the outlook of the shared continent is vulnerable. The Eurozone economy didn’t show growth in the second half of 2023 as the ECB is maintaining interest rates in the restrictive trajectory so that inflation must return to the desired target of 2%.

Going forward, the interest rate decision from the ECB on Thursday will guide the Euro. The ECB is expected to keep its Main Refinancing Operations Rate unchanged at 4.5%.

On the Pound Sterling front, investors await the United Kingdom’s budget 2024 to be released by Chancellor Jeremy Hunt at 12:30 GMT. Hunt is expected to announce a two percentage-point cut to National Insurance Contributions (NICs), which will result in additional saving of 450 pounds to salaried individuals.

It is expected that the scope of fiscal stimulus would be limited as the government is worried about high price pressures.

• EUR/GBP slips to 0.8550 as hot Eurozone inflation data deepen uncertainty over ECB’s timing of rate cuts.
• The highest inflation in the UK economy among G-7 economies indicates that the BoE will cut interest rates later than the ECB.
• The EUR/GBP is near a make-or-a-break point.

The EUR/GBP pair drops slightly to 0.8550 in the European session on Monday as investors remain uncertain when the European Central Bank (ECB) and the Bank of England (BoE) will begin cutting interest rates.

The Eurozone’s preliminary inflation data for February, released on Friday, showed that annual core inflation data, which excludes volatile items such as food and oil prices, grew at a higher pace of 3.1% against expectations of 2.9% but the pace was lower than January’s reading of 3.3%. The monthly core inflation data rose 0.7% after deflating 0.9% in January. This has deepened uncertainty over the timing of rate cuts by the ECB.

Meanwhile, higher inflation in the United Kingdom economy indicates that the BoE will cut interest rates later than the ECB. The UK’s inflation is highest in the Group of Seven economies (G-7), forcing BoE policymakers to hold interest rates in the restrictive territory for a longer period.

EUR/GBP hovers near the upward-sloping border of the Ascending Triangle pattern formed on an hourly timeframe, plotted from February 23 low at 0.8529. The horizontal resistance of the aforementioned chart pattern is placed from February 22 high at 0.8576.

An Ascending Triangle pattern exhibits indecisiveness among market participants but with a slight upside bias due to higher lows and flat highs.

The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, indicating a sharp volatility contraction.

Fresh upside would appear if the asset breaks above February 22 high at 0.8576, driving the asset towards the round-level resistance of 0.8600, followed by January 16 high near 0.8620.

On the contrary, the appeal for the asset weakens if it drops below February 19 low at 0.8537. This would drag the asset towards February 7 low at 0.8516 and the psychological support of 0.8500.

EUR/GBP hourly chart

• The EUR/GBP is currently trading at 0.8560, revealing a mild daily gain in Friday's session.
• The HICP from the EU grew at a higher pace than expected in February,
• Focus now turns to the ECB decision next week, with a hold already priced in.

The EUR/GBP currency pair is currently trading at around 0.8560, registering slight gains after the report of the Harmonized Index of Consumer Prices (HICP) from the Eurozone from February which came in higher than expected. Focus now shifts to next week's European Central Bank (ECB).

Inflation data for the Eurozone in February was slightly above expectations, with the headline rate rising 2.6% year-over-year, compared to the anticipated 2.5%, and down from 2.8% in January. The core inflation rate also exceeded forecasts, coming in at 3.1% year-over-year versus the expected 2.9%, down from January's 3.3%. These figures indicate that while inflation is gradually decreasing, the decrease is not occurring linearly.

Regarding expectations on the next ECB meetings, markets seem to be eying June for the beginning of the easing cycle. For next week, a hold is being priced in while the odds of a cut in April remain low, near 25%. On the Bank of England’s hand, markets are delaying the first cut to August, which seems to give the Pound a slight advantage.

EUR/GBP technical analysis

In recent sessions, the Relative Strength Index (RSI) has fluttered around the neutral area, suggesting a balance between buyers and sellers. The slight increase over the several previous days signals a nascent positive momentum for EUR/GBP, nonetheless, the market is yet to choose a definite direction.

The Moving Average Convergence Divergence (MACD) histogram's flat green bars display a pause in the pair's bullish momentum, implying indecision in the market. Low volatility and the market’s hesitation to choose a direction validate this outlook.

However, the pair remaining above the 20-day Simple Moving Averages (SMAs), while being below the 100 and 200-day SMA, asserts that bears have a grip on the larger timeframe but the bulls are in front for the shorter timeframe.

• EUR/GBP posts modest gains around 0.8560 in Friday’s early European session. 
• Markets expect the first rate cut from the ECB in June meeting 25 bps and a total 75bps for this year. 
• BoE’s Ramsden said he wants to see how long inflation will remain elevated before considering a shifting monetary policy stance.

The EUR/GBP pair holds positive ground above the mid-0.8500s during the early European trading hours on Friday. Investors await the Eurozone Harmonized Index of Consumer Prices (HICP) for fresh impetus. The cross currently trades near 0.8560, down 0.01% on the day.

The European Central Bank (ECB) is anticipated to take another step in its policy normalization process. The ECB President Christine Lagarde would rule out rate cuts at the March meeting, but financial markets believe that the first potential rate cuts might occur in the June meeting. The markets repriced policy easing expectations in February from around 150 basis points (bps) worth of rate cuts to 87 bps and expect the first rate cut in June of 25 bps and a total of 75 bps for this year. 

The Bank of England (BoE) Deputy Governor Dave Ramsden said he wants to see how long inflation will remain elevated before considering shifting monetary policy stance. The BoE policymakers pushed back against market expectations for early interest rate cuts, which lift the Pound Sterling (GBP) and cap the downside of the EUR/GBP cross. 

Looking ahead, market players will keep an eye on the Eurozone Harmonized Index of Consumer Prices (HICP) due on Friday, along with the HCOB Manufacturing PMI from Italy, France, and Germany. Additionally, the BoE's Huw Pill is set to speak later in the day. The attention will shift to the ECB interest rate decision next week. This event might trigger the volatility in the market and traders could find trading opportunities around the EUR/GBP cross. 

• The EUR/GBP is trading at 0.8550, after peaking at a high of 0.8570.
• The Core HICP in Germany grew at a slower pace than expected in February.
• Soft inflation figures fuel the hopes of sooner cuts by the ECB.

the EUR/GBP pair recorded a slight gain in Thursday's session but gave up gains which took the pair to a high of 0.8570. This comes on the heels of softer inflation data from Germany's Harmonized Index of Consumer Prices (HICP), which fueled bets of sooner policy shifts by the European Central Bank (ECB).

February’s preliminary HICP from Germany, showed a continued but slower inflation rate at 2.7% year-on-year, aligning with forecasts yet decreasing from January's 3.1%. The monthly inflation rate was as anticipated at 0.6%, a rebound from January's 0.2% decline. Core inflation, a key focus for the ECB, rose by 2.5%, slightly below the expected 2.6% and down from the previous 2.9%. This slowdown in core inflation growth suggests potential early policy adjustments by the ECB, as President Christine Lagarde hinted at possible rate cuts in the upcoming summer with over 100 bps of easing expected by the European bank in 2024.

EUR/GBP technical analysis

Considering the Relative Strength Index (RSI) for the EUR/GBP pair, the index holds in positive territory, confirming the market is primarily influenced by buyers at the current moment but its flat nature, suggests a market equilibrium, with neither buyers nor sellers gaining additional ground.

Regarding the Moving Average Convergence Divergence (MACD) histogram, it exhibits a falling trend with a sequence of decreasing green bars, which portrays a picture of negative momentum building up. This combination of signals suggests that the buyers are struggling to hold their momentum, but in case they hold above the 20-day Simple Moving Average (SMA) the outlook for the short term, may remain somewhat positive.

EUR/GBP daily chart

• EUR/GBP faced challenges after Germany’s Retail Sales data on Thursday.
• January’s German Retail Sales (YoY) decreased by 1.4%, against the expected 1.5% and 1.7% prior.
• BoE Catherine Mann emphasized that the spending habits of Britons pose a challenge in curbing inflation.

EUR/GBP edges lower to near 0.8560 during the early European session on Thursday, retracing its recent gains. The Euro (EUR) encountered difficulties following Germany’s Retail Sales data. Additionally, disappointing data from the Eurozone on Wednesday might have put downward pressure on the Euro, consequently, undermining the EUR/GBP pair.

German Retail Sales (YoY) declined by 1.4% in January, against the expected 1.5% and 1.7% prior. While a 0.4% decline was recorded in monthly sales of the German retail sector against the expected growth of 0.5%. Economic sentiment declined in February, dropping from 96.1 to 95.4, which fell short of estimates for an improvement to 96.7. Similarly, Consumer Confidence revealed an economic downturn with a consistent reading of -15.5 as expected. Furthermore, market participants are likely awaiting Consumer Price Index, and Unemployment data on Thursday from Germany.

On Wednesday, Bank of England’s (BoE) Catherine Mann remarked that the spending habits of affluent British citizens pose a challenge in curbing inflation. Despite this, market sentiment suggests that the BoE is likely to initiate interest rate cuts soon, which could potentially limit the losses of the EUR/GBP cross.

However, earlier in the week, Bank of England policymakers expressed the need for more evidence indicating a decrease in inflation toward the 2% target before contemplating reductions in key lending rates. BoE Deputy Governor Dave Ramsden emphasized the necessity for further evidence indicating a moderation of inflationary pressures before considering interest rate cuts.

• EUR/GBP gains ground ahead of the Eurozone Economic Sentiment Indicator on Wednesday.
• Commerzbank's economists observe no clear trend suggesting a weaker Euro.
• BoE’s Dave Ramsden stated that UK inflation is more homegrown.

EUR/GBP recovers recent losses registered on Tuesday, edging higher to near 0.8550 during the early European hours on Wednesday. The pair experiences upward support while traders adopt a cautious stance ahead of the Eurozone Economic Sentiment Indicator for February.

European Commission is expected to report that the consumers' confidence, in economic activity, may slightly improve to a reading of 96.7 from 96.2 prior. However, on Tuesday, the Gfk German Consumer Confidence Survey for March printed a reading of -29 as expected, compared to the previous reading of -29.6 in February. Later in the week, the focus will be on the Harmonized Index of Consumer Prices data from the Eurozone and Germany for further insights into the economic landscape.

Economists at Commerzbank mention that Friday's inflation figures would be crucial but no discernible trend indicating a weaker Euro. Earlier this week, European Central Bank (ECB) President Christine Lagarde mentioned that although inflation is steadily approaching the central bank's targets, the ECB is committed to keeping its current policy measures unchanged for the foreseeable future.

Bank of England (BoE) Deputy Governor for Markets and Banking, Dave Ramsden, attended the High-Level Conference hosted by the Hong Kong Monetary Authority and the Bank for International Settlements in Hong Kong on Tuesday. Ramsden highlighted persistent inflationary pressures, noting that inflation in the United Kingdom (UK) is primarily domestically driven. He suggested that monetary policy may need to remain restrictive for an extended period to return inflation to the 2% target.

Investors are likely to closely monitor the speech by Catherine L Mann of the Bank of England for further insights into the central bank's stance on monetary policy and inflation management.

• EUR/GBP appreciates after hawkish remarks made by ECB President Lagarde on Monday.
• ECB is anticipated to maintain its current policy measures for the foreseeable future.
• BoE is expected to delay rate cuts following the recent testimony to the UK Treasury Committee.

EUR/GBP advances to near 0.8550 during the European session on Tuesday. The Euro (EUR) strengthened following hawkish comments made by European Central Bank (ECB) President Christine Lagarde on Monday. Lagarde noted that while inflation is gradually approaching the central bank's targets, the ECB remains dedicated to maintaining its current policy measures for the foreseeable future.

Additionally, ECB President Lagarde mentioned that although fourth-quarter wage growth figures are encouraging, they are not sufficient to instill confidence in the ECB that inflationary pressures have been fully addressed.

Gfk German Consumer Confidence Survey came with a print of -29 for March as expected, against the previous reading for February was -29.6. Investors will be focusing on the release of EU Consumer Confidence data on Wednesday. Later in the week, attention turns to the Germany Retail Sales and Consumer Price Index (CPI) inflation data.

On the other side, with high-impact data absent this week, investors turn their attention to low-impact indicators such as Nationwide Housing Prices and Consumer Credit data. These releases will be scrutinized for any indications regarding the timing of potential rate cuts by the Bank of England (BoE).

Moreover, market sentiment appears to lean towards a potential delay in rate cuts, following recent testimony to the UK Treasury Committee by Bank of England (BoE) Governor Andrew Bailey and other policymakers. Bailey's remarks, though not providing a precise forecast of rate cuts, suggested a trajectory toward rate reduction. This speculation has buoyed the Pound Sterling (GBP), consequently limiting the losses of the EUR/GBP pair.

• EUR/GBP breaks its losing streak on hawkish remarks by ECB officials.
• ECB's Yannis Stournaras ruled out the possibility of rate cuts in March.
• MUFG Bank noted that the technical recession experienced in the second half of 2023 appears to be ending.

EUR/GBP halts its three-day losing streak, edging higher to near 0.8540 during the Asian session on Monday. The Euro (EUR) receives upward support on hawkish comments from European Central Bank’s (ECB) members. Additionally, ECB Monetary Policy Meeting Accounts for January indicated that policymakers maintain caution regarding easing monetary policy. They expressed a consensus that it was premature to discuss rate cuts at the meeting. Traders will likely watch the ECB President Christine Lagarde’s speech later on Monday.

On Friday, several European Central Bank (ECB) policymakers shared their views on economic conditions. ECB's Yannis Stournaras stated that he anticipates a rate cut in June, ruling out the possibility of rate cuts in March. On the other hand, ECB's Joachim Nagel remained confident that inflation will be brought under control, emphasizing the importance of not acting prematurely. Nagel suggested that the ECB should base its decisions on data rather than following the steps taken by other central banks.

On the other side, the lower February consumer confidence data from the United Kingdom (UK) might have weakened the Pound Sterling (GBP), consequently acting as a tailwind for the EUR/GBP pair. On Friday, the GfK Consumer Confidence index for the UK came in at -21, disappointing to the market expectations of a -18 reading and the previous reading of -19, indicating a contraction in consumer confidence in UK economic activity for February.

Economists at MUFG Bank noted that the recent UK PMI data suggests that the technical recession experienced in the second half of last year appears to be ending. The strengthening of global risk sentiment will likely allow the Bank of England (BoE) to maintain a patient stance, similar to other central banks. Furthermore, there remains a possibility of inflation reaching the 2% target in April. Huw Pill, Chief Economist at the Bank of England (BoE) will speak on Monday.

• EUR/GBP remains subdued, slightly below 0.8550, as the UK seems out of recession.
• BoE Dhingra earns downside risks of holding interest rates elevated.
• Eurozone’s economic outlook remains weak due to poor economic activities in Germany and France.

The EUR/GBP pair remains subdued at around 0.8550 in the London session on Friday. The asset is under pressure as the economic outlook of the United Kingdom’s economy improves due to imminent hopes that the Bank of England (BoE) will pivot to cutting interest rates.

On Thursday, the S&P Global/CIPS reported that business optimism improved due to a robust order book. The agency commented that the economy is projected to grow by 0.2%-0.3% in the first quarter of 2024, easing fears of a technical recession observed in the second half of 2023. Investors should note that the economy is considered in a technical recession when it records a de-growth for two straight quarters.

Meanwhile, BoE policymakers are still worried about downside risks to the UK economy due to delaying rate cuts. BoE policymaker Swati Dhingra, who voted for a rate cut in the last policy meeting, said a delayed decision on rate cuts comes at a cost of living standards.

On the Eurozone front, factory activities in the German and French economies remain a significant concern while the rest of the shared continent shows growth. Deepening Red Sea tensions continue to impact business optimism, leading to the requirement of early rate cuts by the European Central Bank (ECB).

However, ECB policymaker and Bundesbank Chief Joachim Nagel said on Friday that it is “too early to cut rates even if a move appears tempting to some.” Nagel added that the period of rapid inflation drops over, and setbacks are anticipated.

EUR/GBP has bounced back higher from the 0.8500 level. Nevertheless, economists at ING do not expect the pair to extend its rally.

Strengthening domestic story

• EUR/GBP edges higher after BoE’s Dhingra advocated for rate cuts.
• Euro could experience pressure as a result of market caution stemming from diminishing expectations of reducing borrowing costs globally.
• Thursday brings PMI data from the United Kingdom and the Eurozone.

EUR/GBP recovers its recent losses on Thursday, trading higher around 0.8570 during the Asian session. On Wednesday, Swati Dhingra, a member of the Bank of England (BoE), suggested that delaying interest rate cuts could lead to increased living costs and potentially result in a harsh economic downturn for the United Kingdom (UK). Dhingra reiterated her argument in favor of implementing rate cuts.

BoE Governor Andrew Bailey addressed the United Kingdom Parliament on Tuesday, noting the rapid decrease in inflation in the UK. He emphasized that the central bank doesn't necessitate a definitive return of inflation to target levels before contemplating interest rate cuts. Additionally, BoE Deputy Governor Ben Broadbent highlighted that wage growth and services inflation both exceed the rate, suggesting alignment with sustainable inflation at 2%.

The Euro faced pressure, likely due to market caution amidst reduced expectations for early interest rate cuts globally. However, China's decision to reduce its five-year Loan Prime Rate (LPR) by 25 basis points (bps) to bolster its economy may offer some support for the Euro, considering the commodities' exports from the Eurozone to China.

Meanwhile, the seasonal and non-seasonal adjusted ECB Current Account improved in December compared to the previous month. Additionally, ECB Negotiated Wage Rates (QoQ) increased in the fourth quarter of 2023. ECB President Christine Lagarde recently emphasized wages as "an increasingly important driver of inflation dynamics in the coming quarters."

Traders are likely preparing for potential volatility surrounding the upcoming release of Purchasing Managers Index (PMI) data from both the Eurozone and the United Kingdom, scheduled for Thursday.