- EUR/GBP is likely to weaken due to the latest UK economic report supporting cautious rate cuts from the Bank of England.
- ECB member Yannis Stonaras said the euro zone is approaching its 2% inflation target.
- The euro faces problems as investors expect the European Central Bank to cut interest rates by 25 basis points in December.
EUR/GBP rebounded after two days of losses and traded around 0.8340 in the Asian session on Thursday. However, the upside in the EUR/GBP cross is likely to be limited as stronger-than-expected inflation in the UK on Wednesday supported the Bank of England’s (BoE) caution about future price cuts. It rose to a six-month high, above expectations of 2.2% and 1.7% in September. CPI rose 0.6% quarter-on-quarter in September. Meanwhile, the core consumer price index (CPI), which excludes food and energy costs, rose to 3.3% in the same period, missing forecasts of 3.1% economic downturn.
Financial services also rose to 5% from 4.9% in the previous report. If rates continue to rise, investors will reassess expectations of a rate cut at the Bank of England’s December meeting. The 2% inflation target has been met. Stonaras said policymakers have a responsibility to ensure they do not fall short of that target, according to Bloomberg. Uncertainty is the main driver of disruption, while increasing global economic instability increases the risk of economic shocks.
The ECB has cut interest rates three times since June as inflation has moved closer to its 2% target. But its growth forecast has been cut twice. The market is broadly expecting a 25 basis point rate cut next month and a less significant rate cut.
