EUR/GBP continues to face selling pressure on Thursday morning, trading around 0.8315 as market participants prepare for the Bank of England’s (BoE) interest rate decision. The pair is under scrutiny as the UK central bank is widely expected to cut the benchmark interest rate by 25 basis points, lowering it to 4.75% from the current 5.0%.
The potential rate cut marks a significant move for the BoE, following a series of developments in the UK. One major factor influencing this decision is last week’s Budget presented by Chancellor Rachel Reeves. UK officials have signaled that inflation and interest rates may rise in the short term, which has fueled speculation about the central bank’s actions through the remainder of the year, including whether another rate cut will follow in December.
The expectation that the BoE will proceed cautiously with its rate cuts contrasts with the European Central Bank’s (ECB) more aggressive easing policy. The ECB has already implemented three rate cuts this year, as inflation risks in the Eurozone appear to be easing faster than anticipated. In fact, money markets are predicting additional ECB cuts of around 125 basis points over the next year, adding to the downward pressure on the Euro.
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Compounding the Euro’s weakness, Germany’s industrial production data for September came in at a disappointing -2.5% MoM, far worse than the forecasted -1.0%. This marks a sharp decline from the 2.6% rise recorded in August. The dismal industrial production figures have added to the negative sentiment around the Euro, further dampening its outlook against the British Pound.
As EUR/GBP trades lower, the cross faces immediate resistance near the 0.8300 level, while the potential BoE rate cut could provide some near-term support to the Pound. However, the outlook for the Euro remains challenging due to both weaker economic data and the continued dovish stance from the ECB.
