The EUR/GBP currency pair is experiencing mild downward pressure, trading near 0.8310 during the early European session on Thursday. Market participants are awaiting several key events later in the day, including the release of the flash Eurozone GDP figures for the third quarter (Q3), and speeches from both Bank of England (BoE) Governor Andrew Bailey and European Central Bank (ECB) President Christine Lagarde.
The Pound Sterling (GBP) faced further headwinds after UK unemployment data for the three months ending in September showed a surprise rise to 4.3%, above expectations. This uptick in unemployment has led some analysts to suggest that markets could begin pricing in a greater likelihood of a rate cut from the BoE in its upcoming meetings. XTB analysts remarked, “The higher UK unemployment rate could prompt the market to adjust expectations, potentially signaling a higher probability of a rate cut from the BoE next month.”
Despite the recent data, BoE Chief Economist Huw Pill remains cautious on the outlook for rate cuts, noting that wage growth in the UK “remains quite sticky” and continues to run at elevated levels, complicating efforts to meet the BoE’s inflation target. Pill acknowledged the significant disinflation seen in the UK economy, which has allowed the central bank to ease some of its previous restrictions, but stressed that a challenging labor market and persistent wage pressures could temper the pace of future policy easing.
This hawkish stance from the BoE may limit the downside for the GBP in the short term, as traders look ahead to Governor Bailey’s speech later today for any additional signals regarding the BoE’s interest rate strategy.
On the Eurozone side, ECB policymaker Olli Rehn commented earlier this week that the ECB is poised to implement further interest rate cuts, with the deposit rate expected to reach a neutral level by the first half of 2025. Expectations are growing that the ECB may deliver more aggressive rate cuts compared to the BoE, which could put downward pressure on the Euro (EUR) in the near term.
Markets are pricing in a 25 basis point (bps) rate cut at the ECB’s next meeting, with a nearly 20% chance of a larger 50 bps move. Investors will be looking closely at ECB President Christine Lagarde’s address later on Thursday, which could provide further clarity on the central bank’s path forward.
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