The EUR/GBP cross is currently trading near 0.8485 in the early European session on Friday, moving in negative territory. The preliminary UK August PMI data has exceeded expectations, leading investors to believe that a rate cut by the Bank of England (BoE) may not be imminent. In contrast, there are expectations of additional rate cuts from the European Central Bank (ECB) later in the year. This has further weighed on the Euro, resulting in a decline in the EUR/GBP cross.
The recent upbeat Purchasing Managers’ Index (PMI) reports from the UK have provided some support to the Pound Sterling (GBP), leading to a decrease in bets for a BoE interest rate cut in September. The latest survey revealed that business activity in the UK recorded its strongest growth in four months, accompanied by cooling price pressures. As a result, financial markets have scaled back their expectations of a rate cut by the BoE next month. This positive data has boosted the GBP against the Euro (EUR) in trading sessions.
On the Euro front, the European Central Bank (ECB) has maintained interest rates unchanged, hinting at the possibility of a rate reduction later in the year. Investors are pricing in a high probability of a 25 basis points (bps) cut in the deposit rate to 3.5% in September, with expectations of at least one more rate cut by the end of the year. This has contributed to the decline in the shared currency and is weighing on the EUR/GBP cross in current trading sessions.
The Pound Sterling (GBP) is the oldest currency in the world and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange, accounting for 12% of all transactions globally. Key trading pairs for the GBP include GBP/USD, GBP/JPY, and EUR/GBP. The value of the Pound Sterling is influenced by monetary policy decisions by the Bank of England, which aims for price stability through the adjustment of interest rates. Economic data releases, such as GDP, PMIs, and the Trade Balance, can also impact the value of the GBP.
Monetary policy decisions by the Bank of England play a crucial role in determining the value of the Pound Sterling. The BoE adjusts interest rates based on inflation levels to achieve price stability. Data releases, such as GDP, PMIs, and employment figures, can provide insights into the health of the UK economy, influencing the direction of the GBP. A strong economy with positive data releases can strengthen the Pound Sterling, while weak economic indicators may lead to a decline in the currency.
The Trade Balance is another significant indicator for the Pound Sterling, measuring the difference between a country’s exports and imports. A positive net Trade Balance strengthens a currency, as it indicates strong export demand. Conversely, a negative balance can weaken a currency. Foreign exchange traders closely monitor these economic indicators along with central bank policies to make informed decisions about trading the GBP.
