EUR/GBP Attracts Some Buyers Around 0.8450 Ahead Of BoE Rate Decision

During early European trading on Thursday, the EUR/GBP cross traded higher near 0.8450. The pair’s gains were supported by better-than-expected euro zone inflation data, which raised doubts about the prospect of an interest rate cut by the European Central Bank (ECB) in September. Later in the day, the Bank of England’s (BOE) interest rate decision will be in focus.

Market participants are somewhat divided on the Bank of England’s upcoming interest rate decision on Thursday. The market believes that the chance of the Bank of England cutting interest rates by a quarter percentage point is 66%, and it is expected to cut interest rates by another quarter percentage point before the end of the year.

“It’s certainly going to be a delicately balanced decision. You can see that in market pricing,” said Jack Meaning, chief UK economist at Barclays. In the event of an unexpected rate cut, Sterling (GBP) may come under some selling pressure, which would be a positive for EUR/GBP.

On the other hand, a rise in euro zone inflation on Wednesday raised questions about the number of rate cuts this year by the European Central Bank. However, Frederik Ducrozet, an economist at Pictet Wealth Management, said rising inflation data in July was “not a cause for concern, but would make the European Central Bank cautious.”

The European Union’s statistical office (Eurostat) released a report on Wednesday saying that the preliminary value of the Eurozone’s Harmonized Index of Consumer Prices (HICP) fell by 2.6% year-on-year in July, compared with 2.5% in June, exceeding expectations of 2.4%. Meanwhile, core HICP inflation held steady at 2.9% in July, above the consensus of 2.8%.

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