The EUR/GBP cross remains under pressure for a fourth consecutive session, trading around 0.8730 in early European dealings on Tuesday. The pair edges lower as the Pound Sterling weakens against the Euro following the Bank of England’s (BoE) widely anticipated rate cut, while policymakers signaled caution over the pace of any further easing amid persistent inflationary pressures.
BoE rate cut weighs on pound sentiment
The UK central bank lowered its benchmark interest rate to 3.75% at its December meeting last week, marking the lowest level since February 2023. BoE Governor Andrew Bailey emphasized during the post-meeting press conference that while the broader direction for interest rates is downward, the speed of future cuts may be slower than markets previously assumed, given the ongoing inflation backdrop.
Markets price cautious easing path
Money markets currently expect at least one additional BoE rate cut in the first half of the year and are assigning close to a 50% probability of a second reduction before year-end, according to Reuters. These expectations continue to shape near-term Sterling dynamics, limiting any meaningful rebound.
UK GDP data offers limited support
From a macroeconomic perspective, the final reading of UK Gross Domestic Product (GDP) provided modest support to the pound. Data from the Office for National Statistics (ONS) showed that the UK economy expanded by 0.1% quarter-on-quarter in the third quarter (Q3), matching preliminary estimates and confirming subdued growth momentum.
ECB policy stance supports euro
On the Euro side, the European Central Bank (ECB) left all three key interest rates unchanged for a fourth straight meeting in December, in line with market expectations. ECB President Christine Lagarde stated that monetary policy is currently in a “good place” and signaled that rates are likely to remain steady for an extended period. Growing indications that the ECB’s rate-cut cycle may be nearing its end could lend near-term support to the euro against the pound.
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