EUR/GBP Analysis: ECB Signals Rate Cut, BoE Less Dovish
- EUR/GBP flat lines near 0.8330 in Tuesday’s early European session.
- ECB’s Lagarde signaled the October rate cut as inflation slows.
- Less dovish stance of the BoE might underpin the Pound Sterling in the near term.
The EUR/GBP cross is trading flat around 0.8330 on Tuesday during the early European session. However, the speculation surrounding the European Central Bank (ECB) potentially lowering interest rates in October could limit the Euro’s upside against the Pound Sterling.
ECB President Christine Lagarde’s Signal
ECB President Christine Lagarde hinted at additional rate cuts at the next policy meeting in October due to signs of slowing inflation and economic struggles. The central bank is more confident that inflation will reach its target, which will influence its policy decisions. This anticipation of ECB rate reduction is likely to weigh on the Euro for the time being.
Eurozone Inflation Data
Traders are awaiting the preliminary Eurozone inflation data for fresh insights. The Harmonized Index of Consumer Prices (HICP) is expected to increase by 1.9% YoY in September, while the Core HICP is estimated to rise by 2.9% YoY in the same period.
Bank of England (BoE) Expectations
Contrary to the ECB’s dovish stance, the BoE’s easing cycle is expected to be less aggressive compared to other G-7 central banks. Investors anticipate a 25 bps interest rate cut from the BoE in the remainder of this year, providing some support to the GBP.
ECB FAQs
What is the European Central Bank (ECB)?
The ECB in Frankfurt, Germany, is the reserve bank for the Eurozone, responsible for setting interest rates and managing monetary policy. Its primary mandate is to maintain price stability by keeping inflation around 2% through interest rate adjustments.
What is Quantitative Easing (QE)?
In extreme situations, the ECB can enact QE, a policy tool involving printing Euros to buy assets like government or corporate bonds. This process usually weakens the Euro and is used when lowering interest rates alone may not stabilize inflation.
What is Quantitative Tightening (QT)?
QT is the reverse of QE and occurs when an economic recovery leads to rising inflation. The ECB stops purchasing bonds and reinvesting maturing principals, which is usually positive for the Euro.