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EUR/GBP extended its losses for the eighth session, trading around 0.8410 in early European trading on Friday. The EUR/GBP cross is likely to extend its losses as the Bank of England’s (BOE) hawkishness to keep interest rates higher for longer than the European Central Bank (ECB) has provided support for Sterling (GBP).
At last week’s Jackson Hole symposium, Bank of England Governor Andrew Bailey said the second round of inflationary pressures would be less significant than expected. However, Bailey also advised against rushing into further rate cuts, according to Reuters. The Bank of England cut interest rates by 25 basis points to 5% on August 1, and money markets are pricing in a further 40 basis points of cuts by the end of the year.
House prices across the UK rose by 2.4% year-on-year in August, up from 2.1% in July. This marks the sixth consecutive month of rising home prices and the strongest growth since December 2022. However, on a monthly basis, house prices fell 0.2% after rising 0.3% in July, defying market expectations for a 0.3% rise.
In the euro zone, consumer price index (CPI) data from Germany and Spain showed inflation cooled further in August. The development fueled expectations of a rate cut from the European Central Bank (ECB), weakening the euro and weakening the EUR/GBP cross.
Carsten Brzeski, global head of macroeconomics at ING, described the results as “good news for the European Central Bank” and noted that a slowing economy and cooling inflation created the “perfect macro backdrop” for a rate cut; However, Brzeski cautioned that service sector inflation remains a concern.
Traders are now eagerly awaiting the latest estimates of the euro zone’s Harmonized Index of Consumer Prices (HICP) for August and July unemployment rate due later in the day for further insight into the euro zone’s economic health.
