EUR/GBP dives further to near 0.8440 on BoE shallow policy-easing prospects

EUR/GBP extends its losing spree as the ECB seems prepared to cut interest rates again in September.
The BoE is expected to follow a gradual interest rate cut approach.
Investors await the flash Eurozone HICP data for August.

The EUR/GBP pair extends its losing spree for the fifth trading session on Tuesday. The cross weakens as the Pound Sterling (GBP) strengthens on expectations that the process of policy-easing by the Bank of England (BoE) in the remaining year would be slower than other central bankers from its major peers.

BoE Governor Andrew Bailey said the central bank would “be careful not to cut interest rates too quickly or by too much” in his speech at the Jackson Hole (JH) Symposium on Friday.

The BoE announced its first-ever interest rate cut on August 1, ending its two-and-a-half year-long restrictive monetary policy stance, as officials gained confidence that price pressures will return to the bank’s target of 2% sustainably.

Currently, financial markets expect that the BoE will deliver one more interest rate cut this year. The reasoning behind a shallow BoE policy-easing cycle is the improving United Kingdom’s (UK) economic outlook.

The economic outlook of the UK economy improved after flash S&P Global/CIPS PMI showed that activities in the manufacturing and the service sector rose at a faster-than-expected pace in August.

On the Eurozone front, the Euro (EUR) underperforms as investors seem confident that the European Central Bank (ECB) will cut interest rates again in the September meeting. Easing price pressures in the shared currency region and uncertain economic outlook have prompted ECB rate cut expectations.

For fresh interest rate cues, investors await the Eurozone flash Harmonized Index of Consumer Prices (HICP) data for August, which will be published on Friday.

Economic Indicator

Core Harmonized Index of Consumer Prices (YoY)

The Core Harmonized Index of Consumer Prices (HICP) measures changes in the prices of a representative basket of goods and services in the European Monetary Union. The HICP, – released by Eurostat on a monthly basis, is harmonized because the same methodology is used across all member states and their contribution is weighted. The YoY reading compares prices in the reference month to a year earlier. Core HICP excludes volatile components like food, energy, alcohol, and tobacco. The Core HICP is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish.