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In early European trading on Friday, EUR/GBP strengthened to around 0.8380. The euro (EUR) held firm following the release of German inflation data and UK growth data. Traders will turn their attention to next week’s UK employment data.
Data released by Destatis on Friday showed that the German consumer price index (HICP) increased by 1.8% at an annual rate in September, with the previous figure and expectations both being 1.8%. German inflation data continues to support the euro zone, while investors are digesting the European Central Bank’s cautious tone on economic growth.
The meeting accounts released on Thursday showed that the European Central Bank is still confident that the inflation rate is expected to reach the 2% target. ECB policymakers believe a 25 basis point (bps) interest rate cut in September is appropriate due to deflation and a fragile economic recovery.
The ECB signaled that any further easing would be gradual and data-dependent. The European Central Bank is expected to cut its deposit rate to 3.5% next week. More than 90% of economists polled by Reuters expected a rate cut next week, with a similar majority betting on a follow-up in December.
In the UK, data released by the Office for National Statistics (ONS) on Friday showed that the UK economy grew by 0.2% quarterly in August. The data was in line with market consensus for economic growth of 0.2% during the reporting period.
At the same time, further delay in interest rate cuts by the Bank of England (BOE) may cap the downside of GBP (GBP) in the short term. The Bank of England’s chief economist, Huw Pill, warned last week against cutting interest rates “too far or too quickly”. Investors expect the Bank of England to cut interest rates at two of its last three meetings before the end of the year, with total reductions between 0.5% and 4.5%.
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