EUR/GBP rebounds near 0.8450 as investors raise bets on BoE rate cuts

• EUR/GBP trades with mild gains around 0.8440 in Friday’s early European session. 
• The BoE is anticipated to reduce its borrowing costs from a 16-year high on August 1. 
• French and German declines in business confidence increase the probability of an ECB rate reduction.

The EUR/GBP cross recovers to 0.8440 during the early European session on Friday. The Pound Sterling (GBP) edges lower amid rising bets that the Bank of England (BoE) would cut its interest rate next week. 

Investors are betting on a 45% chance of a quarter-point rate cut by the BoE at its upcoming policy meeting on August 1. UBS analysts noted that the BoE is expected to deliver the first 25 basis points (bps) cut in early August and another 25 bps in November, bringing the interest rate to 4.75% by the end of 2024. “The key reason why we expect the MPC to cut rates is the recent data,” said UBS analysts.

On the other hand, the decline in French and German business confidence has raised the potential of the European Central Bank (ECB) cutting interest rates in September, amid warnings that the Eurozone's two biggest economies are about to enter an economic downturn. On Thursday, the German IFO Institute business confidence dropped from 88.6 in June to 87 in July, its lowest level since February, worse than the economists’ forecasts of 88.9. 

Market players will take more cues from the preliminary Eurozone Gross Domestic Product (GDP) for the second quarter (Q2). The quarterly Eurozone GDP number is expected to expand by 0.2% QoQ in Q2, compared to the previous reading of 0.3% QoQ.