Euro pound (EUR/GBP) falters amid firming ECB rate cut expectations
The euro pound (EUR/GBP) exchange rate is stumbling today as markets speculate over the European Central Bank’s (ECB) upcoming momentary policy decisions.
At the time of writing the EUR/GBP exchange rate is trading at €0.8412, down approximately 0.2% from this morning’s opening rate.
Pound (GBP) undermined by UK economic woes
The pound (GBP) is struggling to attract investor support this afternoon as UK Prime Minister Keir Starmer recent commentary sours Sterling sentiment.
After briefly touching a fresh two-year high against the US dollar (USD) on Tuesday, GBP relinquishes some of its recent gains today as Starmer’s warnings of a ‘painful’ Autumn Budget this year undermine recent economic optimism in Britain.
Starmer said:
‘I will be honest with you, there is a budget coming in October and it’s going to be painful. Just as when I responded to the riots, I’ll have to turn to the country and make big asks of you to accept short-term pain for long-term good. The difficult trade-off for the genuine solution.’
The British PM’s comments came just days after the release of the UK government’s latest borrowing figures, which revealed significantly larger levels of public sector borrowing than previously imagined.
As a result, concerns of a ‘black hole’ in British public finances fuel speculation of sharp tax rises in this year’s Autumn Budget, souring hopes of improved economic conditions in the UK. In turn, Sterling remains on the back foot so far today.
Euro (EUR) pressured by growing ECB rate cut bets
The euro (EUR) is slumping against its rivals today as markets continue to mull over the likelihood of a September interest rate cut by the ECB.
While recent inflation data from the Eurozone has signalled that the central bank may have more scope to defer further monetary easing than other major central banks, disappointing releases from within the bloc have muddied the waters surrounding the bank’s prospective path forward.
Downbeat German data in recent days points to continually sluggish performance in the Eurozone’s largest economy, while the wider bloc’s recent PMIs and wage report signals that activity across the private continues to face weaker growth.
ECB policymaker Klaus Knot commented:
‘As long as our disinflation path still converges to a return to 2% inflation at or before the end of 2025, then I’m comfortable with gradually taking our foot off the brake.’
Elsewhere, EUR struggled further due to a modest recovery in USD exchange rates, due to the pairing’s negative trading relationship.
Euro pound exchange rate forecast: ECB speeches in focus
Looking ahead, ECB policymaker Isabel Schnabel is due to speak tomorrow morning. In addition, the central bank’s Governor Philip Lane will also deliver a speech shortly after. Should the policymakers signal that the bank deems a September rate cut to be acceptable at this stage, EUR could sink against its peers amid rising rate cut bets.
Looking to the UK, a lack of immediate data could see GBP left vulnerable to global risk dynamics. Cheery trading conditions may bolster the increasingly risk-sensitive pound, while gloomy trade may see the safe-haven euro take precedent.
