Title: Euro Falls as Eurozone GDP Growth Revised Down, ECB Interest Rate Cut Expected in September
EUR/GBP retreats from highs after Eurozone GDP revision, signaling potential ECB rate cut in September. Sterling strength limits EUR/GBP gains amid BoE’s slower rate cut expectations.
The Euro (EUR) faced selling pressure on Friday as Eurozone GDP data for Q2 was revised downward, leading to a quarterly growth rate of 0.2% compared to the initial estimate of 0.3%. This revision increases the likelihood of the European Central Bank (ECB) cutting interest rates at its upcoming September meeting, which weighs on EUR/GBP due to reduced foreign capital inflows with lower rates.
The slowdown in growth also supports concerns that high interest rates may be hindering economic expansion, echoing remarks from ECB Executive Board member Piero Cipollone about the potential risks of overly restrictive monetary policy. Meanwhile, the Pound Sterling (GBP) remains strong as investors anticipate a more gradual easing path from the Bank of England (BoE), with only a 0.25% rate cut expected by the end of 2024.
In contrast, the ECB is forecasted to implement at least a 0.50% rate cut before the year’s end, with a majority of economists expecting rate cuts in both September and December. This divergence in monetary policy outlook between the ECB and the BoE further influences EUR/GBP dynamics.
Analysis: Eurozone’s revised GDP data and expectations of ECB rate cuts in September contribute to Euro weakness against the Sterling, impacting potential capital flows and highlighting diverging monetary policy paths between the two central banks. This can affect individuals by influencing exchange rates and potentially impacting investment decisions involving Euro and Pound Sterling assets.