The EUR/GBP cross has softened to around 0.8450 during early European trading hours on Thursday, as the dovish stance of European Central Bank (ECB) policymakers pressures the Euro (EUR) against the Pound Sterling (GBP). Attention is also turning to the release of the preliminary Eurozone Consumer Confidence for January, which could further influence market sentiment.
ECB President Christine Lagarde, alongside policymakers such as Francois Villeroy de Galhau, Klaas Knot, and Yannis Stournaras, have all voiced support for further interest rate cuts. This stance has contributed to the bearish outlook for the Euro in the near term. Market participants have fully priced in a reduction of the 3.0% deposit rate on January 30, with expectations that the benchmark rate will fall to 2.0% by the end of 2025.
ECB Croatian central bank chief Boris Vujcic suggested earlier this week that market expectations for ECB rate cuts are reasonable, with inflation risks deemed to be broadly balanced. Meanwhile, Lagarde emphasized on Wednesday that the ECB is “not overly concerned” about inflationary pressures from abroad and will continue to implement interest rate cuts at a gradual pace.
On the GBP side, investors are anticipating a 25 basis point rate cut by the Bank of England (BoE) to 4.5% on February 6. According to economists polled by Reuters, three additional cuts are expected this year, with markets forecasting one or two more rate reductions following February’s decision. Capital Economics analysts have stated, “We still think the Bank of England will cut interest rates at the next meeting in February, from 4.75% to 4.50%, and continue to cut rates gradually thereafter.”
As these monetary policy shifts unfold, both the Euro and the Pound are expected to be heavily influenced by the central banks’ evolving strategies.
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