- EUR/GBP is flat near 0.8355 in early European trading on Thursday.
- BoE policymaker confirmed that it is appropriate to cut rates only at a gradual pace.
- The ECB is expected to cut interest rates further by April next year, HSBC analysts said.
The EUR/GBP pair remains flat around 0.8355 during the early European session on Thursday. However, a less dovish stance from the Bank of England (BoE) could provide some support to the British Pound (GBP). Traders will take further cues from speeches by European Central Bank (ECB) policymakers later in the day, including ECB President Christine Lagarde, Frank Elderson and Luis de Guindos.
The Bank of England’s (BoE) cautious stance could support GBP against the Euro (EUR). BoE policymaker Megan Greene said on Wednesday: “I think risks to activity are to the upside, which could suggest that the longer-term neutral rate is higher and, all else equal, our policy stance is not as restrictive as we had thought. Given this risk, I think a gradual approach to removing tightening is appropriate.”
On the other hand, downbeat German IFO reports earlier this week raised recession fears in Germany, prompting expectations of additional rate cuts and potentially limiting the Euro (EUR)’s near-term upside. The ECB is likely to cut interest rates more deeply than previously expected, reducing its key deposit rate by 25 basis points (bps) at each of its upcoming meetings between now and April next year, HSBC analysts noted. Eurozone consumer confidence and industrial confidence for September are due out on Friday. Any signs of improvement in the Eurozone economy could help limit losses for the common currency in the near term.
ECB FAQs
The European Central Bank (ECB), based in Frankfurt, Germany, is the reserve bank of the Eurozone. The ECB sets interest rates and manages monetary policy in the region.
The ECB’s main mandate is to maintain price stability, which means keeping inflation at around 2%. Its main tool for achieving this is to raise or lower interest rates. Relatively high interest rates usually translate into a stronger Euro, and vice versa.
The ECB’s Governing Council takes monetary policy decisions at meetings held eight times a year. Decisions are taken by the heads of the euro area’s national banks and six permanent members, including ECB President Christine Lagarde.
In extreme situations, the European Central Bank can put in place a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets (usually government or corporate bonds) from banks and other financial institutions. The result is usually a weaker Euro.
QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis of 2009-11, in 2015 when inflation remained stubbornly low, as well as during the coronavirus pandemic.
Quantitative tightening (QT) is the reverse of QE. It takes place after QE, when the economic recovery is underway and inflation starts to rise. While in QE the European Central Bank (ECB) buys government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds and stops reinvesting the maturing principal of the bonds it already owns. It is usually positive (or bullish) for the Euro.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
