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Euro holds near 1-week highs versus pound as ECB bets firm
EUR/GBP has struggled to break above 0.8550 as investors weigh expectations of an ECB rate hike in September against a more uncertain BoE outlook for the UK.
The euro is holding minor gains against the British pound for a third straight session, with EUR/GBP supported by expectations that the European Central Bank is moving closer to raising interest rates after its September meeting, according to FXStreet.
Investors pointed to recent euro zone data, including a rebound in second-quarter growth after the prior quarter’s stagnation, along with employment growth, as supporting the view that the ECB could lift rates by a quarter point to help curb high inflation.
The case for the BoE is less clear, FXStreet notes, citing a split in recent monetary policy decision-making and commentary from Governor Andrew Bailey that leans more dovish. The outlet also cites UK economic signals, including UK GDP growth in Q2 alongside industrial production suggesting a possible slowdown in the third quarter, plus benign consumer inflation data in June.
On the pound side, FXStreet highlights uncertainty tied to the UK budget and the prospect of additional gilt supply, which it says could keep UK markets nervous into autumn. It also notes that easing cost of living pressures would still need to be funded, adding to concerns about how any looser fiscal stance will be financed.