EUR/GBP attracts some buyers near 0.8450 ahead of BoE rate decision

• EUR/GBP gains ground around 0.8450 in Thursday’s early European session, gaining 0.35% on the day. 
• Expectations for a rate cut by the BoE remain divided.
• An increase in Eurozone inflation raised doubts about the pace of ECB rate cuts this year. 

The EUR/GBP cross trades on a stronger note near 0.8450 during the early European session on Thursday. The uptick of the cross is supported by the hotter-than-expected Eurozone inflation data, which raises doubt on the prospect of European Central Bank (ECB) interest rate cuts in September. Later in the day, the Bank of England (BoE) interest rate decision will take centre stage. 

Consensus among market players is somewhat split over the upcoming interest rate announcement by the BoE on Thursday. The markets were pricing in a 66% odds of a quarter-point cut by the UK central bank and then expected one more quarter-point cut before the end of the year. 

“It’s certainly going to be a finely balanced decision. You can see that from the market pricing,” said Jack Meaning, chief UK economist at Barclays. In the event of an unexpected rate cut, the Pound Sterling (GBP) might face some selling pressure, which acts as a tailwind for EUR/GBP. 

On the other hand, a rise in Eurozone inflation on Wednesday raised questions about the number of rate reductions by the European Central Bank this year. However, Pictet Wealth Management economist, Frederik Ducrozet. said that hotter inflation data in July was “not much to worry about, but will keep the ECB on the cautious side." The ECB decided to cut its key lending rates in June, with another two reductions expected before the end of the year.

The first reading of the Harmonised Index of Consumer Prices (HICP) in the Eurozone climbed by 2.6% year-on-year in July, compared to 2.5% in June, exceeding expectations of 2.4%, Eurostat reported on Wednesday. Meanwhile, the core HICP inflation holds steady at 2.9% YoY in July and above the market consensus of 2.8%.