EUR/GBP gains traction to near 0.8350 ahead of BoE’s Greene speech

• EUR/GBP drifts higher to 0.8345 in Wednesday’s early European session. 
• The BoE’s dovish stance continues to weigh on the Pound Sterling. 
• The downbeat German IFO reports have added to German recession fears, which might cap the cross’s upside. 

The EUR/GBP pair rebounds near 0.8345 during the early European session on Wednesday. The dovish remarks from Bank of England (BoE) Governor Andrew Bailey weigh on the Pound Sterling (GBP). Investors will take more cues from the BoE’s Megan Greene later in the day. 

The BoE Governor Andrew Bailey said he was “very encouraged” by the downward path of inflation, and he expected the path for interest rates will be downwards gradually. However, Bailey warned consumers not to expect a return to near-zero levels. Bailey’s comments suggested that the UK central bank would continue its easing policy over a long period, which exerts some selling pressure on the GBP. The financial markets anticipate the interest rates could drop to 4.5% by the end of 2024, and lower to 3.5% by the end of 2025.
 
On the Euro front, Germany’s IFO Index dropped for the fifth consecutive month, indicating the economy remains stuck in stagnation. The German IFO Business Climate Index declined to 85.4 in September from 86.6 in August, below the consensus of 86.0. The Current Economic Assessment Index dropped to 84.4 versus 86.4 prior (revised from 86.5). Finally, the IFO Expectations Index declined to 86.3 in September from 86.8 in August, matching the expectations. 

The fall in Germany’s IFO reports has added to German recession fears, which might cap the upside for the cross in the near term. On Tuesday, the ECB governing council member Klaas Knot stated that the central bank would continue to reduce the interest rates at least through the first half of 2025 to a level between 2% and 3%, per Reuters.