Market Analysis

EUR/GBP continues its downward trajectory, influenced by challenges facing the Euro due to dovish remarks from European Central Bank (ECB) policymaker Francois Villeroy. During the Asian session on Friday, the EUR/GBP pairing depreciated to around 0.8540.

Villeroy highlighted a significant decline in core inflation and expressed confidence in the ECB's ability to achieve its 2% inflation target. However, he cautioned about escalating downside risks if the ECB delays implementing rate cuts.

Furthermore, ECB executive board member Fabio Panetta emphasized on Thursday that conditions for implementing monetary policy easing are emerging. He noted that restrictive policies are suppressing demand, leading to a rapid decline in inflation. Panetta also signaled a decrease in risks to price stability.

On the other hand, the Pound Sterling (GBP) held its ground, possibly buoyed by hawkish remarks from Bank of England official Jonathan Haskel. Haskel suggested that rate cuts should be considered "a long way off," while his colleague Catherine Mann cautioned against overly high expectations for interest rate cuts this year.

Despite Bank of England officials expressing reluctance towards rate cuts, the British Pound (GBP) may have encountered downward pressure following economic data indicating that the United Kingdom’s (UK) economy slipped into recession in the second half of 2023. The nation's Gross Domestic Product (GDP) contracted by 0.3% quarter-on-quarter in the fourth quarter of 2023, aligning with preliminary estimates.

Speculation continues regarding the Bank of England's (BoE) potential initiation of three quarter-point rate reductions throughout 2024. BoE Governor Andrew Bailey affirmed that interest rate cuts will be deliberated at future BoE policy meetings.

Paraphrasing text from "FX Street" all rights reserved by the original author.