EUR/GBP appreciates to near 0.8400 due to hawkish sentiment surrounding the ECB

• EUR/GBP gains ground as the ECB could maintain the main refinancing rate at 4.25% at Thursday’s meeting.
• The Pound Sterling may appreciate further as investors consider UK markets to be a more attractive investment option.
• BoE may initiate reducing interest rates at the August meeting.

EUR/GBP continues to gain ground for the second consecutive session, trading around 0.8400 during the Asian hours on Tuesday. However, the EUR/GBP cross still remains close to 0.8386, the lowest level since August 2022 recorded on Monday.

The Euro finds support from bullish expectations surrounding the European Central Bank (ECB). The ECB is expected to maintain the main refinancing rate at 4.25% during its upcoming July meeting on Thursday. In June, the central bank reduced the interest rate for the first time since 2019, following nine months of unchanged rates. Analysts anticipate two additional rate cuts later this year, likely in September and December.

On the GBP’s side, investors increasingly view the United Kingdom's (UK) financial markets as a preferable investment destination over both European and US markets, which are grappling with political uncertainties. The Labour Party's resounding victory under Keir Starmer has assured stable fiscal policies and streamlined ministerial appointments. This positive sentiment contributes to support for the Pound Sterling (GBP).

Additionally, the GBP's strength has been bolstered by heightened uncertainty surrounding the timing of potential rate cuts by the Bank of England (BoE). Traders anticipate that the BoE will initiate interest rate reductions starting from the August meeting.

Traders assess the upcoming economic data on Wednesday that could impact the Bank of England's monetary policy stance. The Consumer Price Index (YoY) is projected to hold steady at the BoE's 2% target, with core inflation anticipated to dip to 3.4%. Additionally, the Retail Price Index is likely to see a decline, marking the fourth drop in five months.