Market Analysis

The EUR/GBP pair has rebounded towards 0.8380 during the early European session on Thursday, as the Pound Sterling (GBP) weakens following comments from Bank of England (BoE) Governor Andrew Bailey.

In his speech on Thursday, Bailey suggested that the BoE might adopt a “slightly more aggressive” stance on rate cuts if inflation continues to ease. He also mentioned that the central bank is closely monitoring the situation in the Middle East. These dovish remarks added downward pressure on the GBP, providing support for the EUR/GBP pair.

In September, the BoE maintained interest rates at 5.0% after implementing its first rate cut in four years in August. Market participants now anticipate another 0.25% cut at the BoE’s upcoming November meeting.

Meanwhile, European Central Bank (ECB) President Christine Lagarde stated last month that the ECB is not committing to further rate cuts and remains focused on a “data-dependent” approach. However, recent Eurozone economic data has increased the likelihood of a rate cut by the ECB, with inflation in the region dropping to 1.8% in September, below the 2% target.

ECB Governing Council member Kazaks acknowledged that recent data points to a possible rate cut but cautioned against “exaggerated” market expectations. The market currently prices in a 95% probability of a rate cut in October, a sharp rise from 25% following the ECB’s September decision.

Investors are now looking ahead to Thursday’s release of the HCOB September Purchasing Managers’ Index (PMI) for Germany and the Eurozone, as well as the Producer Price Index (PPI). A weaker-than-expected result could put further pressure on the Euro against the GBP.

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