EUR/GBP moves lower to near 0.8520 ahead of GDP data from Eurozone, Germany

• EUR/GBP faces downward pressure before the release of GDP data from the Eurozone and Germany.
• BoE officials emphasized prolonging the restrictive monetary policy to tackle inflation.
• ECB is expected to reduce interest rates by 50 bps by June and 140 bps by December 2024.

EUR/GBP continues its downward trend for the second consecutive session, leading up to the upcoming Bank of England (BoE) interest rate decision scheduled for Thursday. As of the Asian session on Tuesday, the pair trades around 0.8520, indicating a decline in value. Investors are closely monitoring these developments in anticipation of the impact the BoE’s decision may have on the EUR/GBP pair.

Market expectations suggest that the Bank of England (BoE) is likely to maintain its current interest rate of 5.25%. BoE members have emphasized the significance of sustaining a prolonged period of restrictive monetary policy to tackle inflation concerns, contributing to the strength of the Pound Sterling (GBP). This, in turn, acts as a headwind for the EUR/GBP pair.

However, there has been an adjustment in market participants’ expectations for rate cuts, with the first cut now fully priced in for June. Initially anticipated for May, this shift in expectations is noteworthy and is likely to influence trading dynamics for the EUR/GBP pair following the upcoming BoE decision.

The Euro (EUR) is encountering downward pressure following the European Central Bank’s (ECB) decision to maintain its Main Refinancing Operations Rate at 4.50% and the Deposit Facility Rate at 4.0%. Despite this decision, there is growing anticipation in the market for ECB rate cuts, with expectations of a 50 basis points (bps) reduction by June and a more substantial 140 bps cut by December 2024.

In a recent statement on Monday, ECB Vice President Luis de Guindos indicated that the ECB would contemplate interest rate cuts once there is confidence that inflation aligns with the central bank’s 2.0% goal. He pointed out positive developments in inflation and suggested that these favorable trends would eventually influence the ECB’s monetary policy.

Looking ahead, the release of the quarterly Gross Domestic Product (GDP) figures for the Eurozone and Germany is scheduled for Tuesday, adding another layer of significance to the evolving economic landscape.