EUR/GBP falls further below 0.8450 as UK economy recovers faster than expected

EUR/GBP remained on the defensive around 0.8425 in early European trading on Thursday. The pair fell modestly following the release of monthly UK GDP data.

The UK economy grew more than expected in May after stagnating in April, with GDP rising 0.4% month-on-month. The figure beat market expectations by 0.2%, according to data released by the Office for National Statistics (ONS) on Thursday. The British pound (GBP) attracted a small number of sellers on the stronger UK data.

Uncertainty has risen over the Bank of England’s (BOE) decision to cut borrowing costs from its August meeting. BoE policymaker Catherine Mann signaled a cautious approach to rate cuts, warning that inflation in the UK will re-emerge and service prices will rise rapidly. Mann added that uncertainty over the behavior of UK wages is unlikely to disappear soon and policy decisions need to be robust to this.

Meanwhile, Bank of England policymaker Jonathan Haskell said he did not want to cut rates because inflationary pressures remain in the job market and it is unclear how quickly they will dissipate. Investors currently see a near 60% chance that the Bank of England will cut rates on August 1, the first rate cut since 2020.

In the euro, European Central Bank (ECB) Governing Council member Fabio Panett said on Tuesday that the ECB could continue to cut rates, adding that wage growth, the main driver of inflation, “is not warranted.”

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