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During early European trading on Tuesday, the EUR/GBP cross extended its decline to around 0.8315. The Bank of England (BoE) interest rate decision will be in focus on Thursday.
The Bank of England is widely expected to cut interest rates on Thursday, taking the benchmark rate to 4.75% from 5.0%. Political dynamics will influence the central bank’s decision on Thursday, especially last week’s budget speech by Chancellor of the Exchequer Rachel Reeves. British officials have said they will push inflation and interest rates higher in the near term, raising more doubts about whether the Bank of England will cut rates again after its December meeting.
Expectations that the Bank of England will cut interest rates less than expected from the European Central Bank (ECB) could provide some support to Pound Sterling (GBP) and cap the upside for the currency cross in the near term.
The European Central Bank has cut interest rates three times this year as inflation risks in the euro zone have eased faster than expected. Rising bets on interest rate cuts from the European Central Bank have put some selling pressure on the euro. Money markets believe the ECB will cut interest rates by about 125 basis points next year.
Data from Destatis on Thursday showed German industrial activity fell 2.5% on month in September, after rising 2.6% (revised to 2.9%) in August, weaker than expectations for a 1.0% decline. The eurozone’s immediate reaction to the downturn in industrial production data remains weak.
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