EUR/GBP Struggles Amid ECB Rate Cut Expectations

In the early European session on Tuesday, the EUR/GBP pair faced challenges in maintaining its position above the immediate support level of 0.8530. The cross remains under pressure, primarily driven by the weakening Euro amidst growing expectations that the European Central Bank (ECB) will follow suit with rate cuts, trailing other central banks from developed nations.

ECB policymakers view market expectations for a reduction in borrowing rates starting from the June meeting as reasonable. Notably, the annual core Consumer Price Index (CPI), excluding volatile food and energy prices, significantly decreased to 2.9% in March. The consistent decline in Eurozone core CPI over the past eight months indicates a sustainable downtrend towards the 2% target for inflation.

During a recent monetary policy conference, ECB President Christine Lagarde remarked that if a fresh assessment boosts policymakers’ confidence in inflation returning to target, then a reduction in interest rates “would be appropriate,” as reported by Reuters.

Conversely, the Pound Sterling has exhibited strength against the Euro due to strong speculations surrounding the ECB’s potential rate cuts. However, it faces weakness against the US Dollar. The Pound Sterling’s performance is dampened by weak labor market data for the quarter through February, signaling a bleak economic outlook.

According to the United Kingdom Office for National Statistics (ONS), the Unemployment Rate surged to 4.2%, surpassing expectations of 4.0% and the previous reading of 3.9%. In February, UK employers terminated 156,000 workers, a notable increase from 89,000 in January.

Looking ahead, investors will closely monitor the UK Consumer Price Index (CPI) data for March, scheduled for release on Wednesday. This inflation data will significantly influence market expectations regarding potential Bank of England (BoE) rate cuts, currently anticipated to commence from the August meeting.

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