Market Analysis

EUR/GBP has retraced recent gains, trading around 0.8520 during early European trading on Tuesday. Investors are anticipating a gradual reduction in interest rates by the European Central Bank (ECB). However, ECB policymakers have been cautious about committing to a specific rate-cut trajectory due to concerns over the potential reacceleration of price pressures.

Germany’s Producer Price Index (PPI) fell by 0.8% year-over-year in July, meeting expectations and following a previous decline of 1.6%. On a monthly basis, the index increased by 0.2%, also in line with forecasts. Investors are now focusing on the Harmonized Index of Consumer Prices (HICP) data from the European Monetary Union (EMU), which is set to be released later today.

Recent UK inflation and employment reports have reinforced the argument for the Bank of England (BoE) to keep the interest rate at 5.0% in its September meeting. Finance Minister Rachel Reeves has highlighted the latest data’s indication of the new government's economic challenges, stressing the need for difficult decisions to improve economic fundamentals, according to Reuters.

Rupert Thompson, Chief Economist at IBOSS, commented that the BoE is expected to keep rates unchanged at the September meeting, with any potential rate cut likely postponed until November. The prospect of further rate cuts by the BoE may place additional pressure on the Pound Sterling (GBP) in the short term.

Traders will be watching the Purchasing Managers Index (PMI) data from the Chartered Institute of Procurement & Supply and S&P Global, scheduled for release on Thursday, as it could provide further insights into the UK’s economic conditions and impact the Bank of England's policy decisions.

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