The EUR/GBP cross continues its downward trend, nearing 0.8550 in early European trading on Monday. Speculation that the European Central Bank (ECB) will accelerate its rate cuts is weighing on the Euro (EUR). Meanwhile, all eyes are on the UK labor market report scheduled for Tuesday for potential market-moving insights.
Bloomberg economists forecast that the ECB will lower its deposit rate quarterly until the end of next year. This unexpected timeline for rate cuts is dampening the Euro’s performance against the Pound Sterling (GBP). Previous projections indicated a benchmark rate of 2.25% by December 2025 after six consecutive quarter-point reductions, a quicker pace than initially anticipated.
On the GBP side, traders are anticipating two more rate cuts by the Bank of England (BoE) in 2024. The upcoming monetary policy meeting on September 19 has a 40% probability of a rate cut. The UK labor market data release on Tuesday is expected to shed light on the country’s economic health and potential rate adjustments.
Forecasts suggest a rise in the UK unemployment rate to 4.5% in June, with average weekly earnings excluding bonuses declining by 5.4% YoY. Including bonuses, total earnings are expected to decrease by 4.6% YoY. Slower wage growth could prompt the BoE to maintain its easing stance, putting pressure on the GBP and limiting downside for the EUR/GBP cross.
Analysis:
The ongoing decline in the EUR/GBP cross is driven by expectations of accelerated rate cuts by the ECB, contrasting with projections for additional rate reductions by the BoE. These diverging monetary policy paths are influencing currency performance and creating trading opportunities for investors. Traders should monitor upcoming economic data releases, such as the UK labor market report, for further insights into potential market movements and adjustments in trading strategies.