EUR/GBP slips modestly to around 0.8795 in early European trading on Wednesday, though further downside may be limited as growing expectations of a dovish Bank of England (BoE) stance continue to weigh on the Pound Sterling (GBP).
Markets eye December rate cut
Investors anticipate a possible BoE rate cut in December, as concerns over higher overall taxation following the UK autumn budget combine with easing inflation and a cooling labor market. These factors strengthen expectations of a policy shift and could add near-term pressure on the GBP.
Prime Minister Keir Starmer reiterated the need to bring inflation and interest rates lower to support business investment and boost economic growth. According to Reuters, a majority of analysts now expect the BoE to trim its policy rate to 3.75% in December, with markets assigning a roughly 90% probability to this outcome.
Eurozone inflation surprise limits ECB cut bets
Eurozone inflation unexpectedly rose in November, reducing the likelihood of further rate cuts by the European Central Bank (ECB) in the current environment. The ECB kept its main rates steady at its September and October meetings, with the deposit rate holding at 2.00%.
The euro may find support from the market’s growing conviction that the ECB is finished with its rate-cutting cycle. Last week, ECB President Christine Lagarde noted that borrowing costs are now at the “right level,” reinforcing expectations of stable policy ahead.
