- EUR/GBP faces a challenge as the BoE is expected to avoid rate cuts in its upcoming meeting.
- BoE Chief Economist Huw Pill called the expectation of interest rate cut premature.
- OECD anticipated EU inflation to persist above the ECB’s 2% target until some point after 2025.
EUR/USD snaps its three-day winning streak, edging lower to around 0.8570 during the Asian session on Tuesday. However, the Pound Sterling (GBP) might have received upward support against the Euro (EUR) from the improved Purchasing Managers Index (PMI) data from the United Kingdom (UK). Furthermore, traders will likely watch the Retail Sales data from both economies on Tuesday.
The Bank of England’s (BoE) Chief Economist and Executive Director for Monetary Analysis, Huw Pill, stated on Monday that although the prevailing sentiment points toward potential interest rate cuts in the future, expectations for such cuts might be premature. Pill emphasized that the BoE is seeking more robust evidence that UK inflation will continue to decrease in the coming months before considering any rate-cutting measures.
UK S&P Global/CIPS Composite PMI increased to a reading of 52.9 against the market expectation of remaining the same at 52.5 in January. Meanwhile, Services PMI improved to 54.3 as compared to the expected 53.8. On the other side, the annual EU Producer Price Index (PPI) saw a substantial decline of 10.6% in December, surpassing the expected decrease of 10.5% and exceeding the previous figure of 8.8%. Meanwhile, the monthly index exhibited a fall of 0.8%, in line with expectations, with the previous decline being 0.3%.
The EUR/GBP cross experienced downward pressure as the EU block is grappling with a disinflationary trend, raising the possibility that the European Central Bank (ECB) may contemplate implementing policy measures to address the situation. According to the Organisation for Economic Co-operation and Development (OECD), inflation in Europe is anticipated to persist above the ECB’s 2% target until some point after 2025.
