The EUR/GBP pair has been gaining ground for the third consecutive session, currently trading around 0.8460 during the European session on Monday. This rise in the Euro against the British Pound is attributed to the dovish pause by the Bank of England (BoE) last week, which has increased expectations of an interest rate cut at the August monetary policy meeting.
The BoE’s statement and minutes from Thursday hinted at a possible rate cut decision in the near future. ING’s FX Strategist Francesco Pesole has mentioned that their base case scenario includes three rate cuts in 2024 starting from August, which is more dovish compared to the market’s expectation of only two cuts. Additionally, the flash UK PMIs released on Friday showed a slow expansion of private sector business activity in June, putting further pressure on the Pound Sterling and strengthening the EUR/GBP cross.
However, the Euro may face challenges due to uncertainties surrounding the outcome of a snap election in France. There are concerns that a new government might worsen the fiscal situation in the Eurozone’s second-largest economy, potentially limiting the upside for the EUR/GBP cross. Moreover, the German IFO Business Climate Index fell to 88.6 in June from 89.3 in May, coming in below market expectations. The Current Assessment Index remained unchanged at 88.3, while the Expectations Index dropped to 89.0 from 90.4. This weaker German economic data could further weigh on the Euro and limit the rise of the EUR/GBP pair.
Overall, the BoE’s dovish stance has boosted expectations of an interest rate cut in August, causing the Pound Sterling to weaken against the Euro. However, uncertainties surrounding a snap election in France and weaker German economic data could pose challenges for the Euro, potentially limiting the upside for the EUR/GBP pair. Traders will continue to monitor economic developments and central bank policies for further insights into the performance of the currency pair in the coming days.
