- The EUR/GBP attracts the sellers on Monday, with the crossing floating just above the 0.8700 psychological brand, lowering more than 0.20% intradic.
- The operators are relocated before the monetary policy decision of the Bank of England scheduled for Thursday, August 7.
- The economic perspectives of the United Kingdom are pressed for tax increases, a deceleration in consumer demand and a weakened labor market.
The Euro (EUR) lowers the pound sterling (GBP) on Monday, with the pound quoting in a firmer position in general, while the operators are relocated before the monetary policy decision of the Bank of England (BOE) scheduled for Thursday, August 7.
The EUR/GBP crossing marked a maximum intradic of 0.8731 during the first Asian session, but since then it has been falling. At the time of writing, the EUR/GBP is floating around 0.8707 during the American negotiation hours, lowering more than 0.20% in the day, while pausing a strong rebound from about a minimum of three weeks and breaks a two -day streak of profit. However, the fall seems to be limited, with increasing expectations of a dovish rate cut by the BOE on Thursday that damp additional losses.
It is widely expected that the BOE Monetary Policy Committee (MPC) deliver a 25 -point rate cut on Thursday, reducing the reference rate to 4.00%. This would mark the fifth consecutive reduction since August 2024, since the United Kingdom’s economy struggles under the weight of tax increases and the cautious consumer expense. While general inflation was softened to 3.6% in June, it remains well above the 2% target, and the persistent inflation of services continues to worry those responsible for policies. Meanwhile, the labor market shows clear signs of cooling, with an increase in unemployment, slow salary growth and a marked decrease in the impulse of contracting, all of which adds pressure to the BOE to maintain its path of flexibility.
Employers have cut the demand for workers after being beaten by the measures in the first budget of the Labor Government, which included an increase of 26,000 million pounds (34.5 billion dollars) in payroll taxes and a strong increase in the minimum wage.
Despite the expectations of a rate cut, the decision will probably reveal a division within the MPC. Some members can press for a deeper reduction of 50 basic points, while others could advocate for a pause, citing the persistence of inflation. The governor of the BOE, Andrew Bailey, has emphasized a “gradual and cautious” approach towards the flexibility of politics, stating that the recent increase in price pressures will be temporary.
In the front of the euro, the feeling is still fragile after the announcement of a commercial framework between the United States and the European Union (EU), which has received harsh criticism from several European leaders. The agreement is widely perceived as unilateral and very biased in favor of the United States, which generates concerns about its long -term implications for the competitiveness of the eurozone.
In the data front, the preliminary figures of the harmonized consumer price index of the eurozone showed that inflation remained stable at 2.0% year -on -year in July. The underlying inflation also remained moderate, with the inflation of services decreasing and food prices increasing slightly. The European Central Bank (ECB) maintained stable interest rates at its July meeting, citing the impact of the persistent commercial uncertainty and winds against external in the eurozone economy. The ECB also noted that its policy flexibility cycle could be close to its end as inflation is moderated. In contrast, the BOE is expected to continue trimming rates as the United Kingdom inflation remains high and economic activity shows cooling signs.
This growing divergence in the policy perspectives between the ECB and the BOE can help limit more falls at the EUR/GBP crossing, or even offer a modest support in the short term.
BOE – Frequently Questions
The Bank of England (BOE) decides the monetary policy of the United Kingdom. Its main objective is to achieve prices stability, that is, a constant inflation rate of 2%. Your instrument to achieve this is the adjustment of basic loan rates. The BOE sets the type to which it provides commercial banks and to which banks lend themselves to each other, determining the level of interest rates in the economy in general. This also influences the value of sterling pound (GBP).
When inflation exceeds the objective of the Bank of England, it responds by raising interest rates, which makes access to credit for citizens and companies more expensive. This is positive for sterling pound, since higher interest rates make the United Kingdom a more attractive place for world investors to invest their money. When inflation falls below the objective, it is a sign that economic growth is slowing down, and the Bank of England will consider the possibility of lowering interest rates to reduce credit in the hope that companies ask to borrow to invest in projects that generate growth, which is negative for sterling pound.
In extreme situations, the Bank of England can apply a policy called Quantitative Easing (QE). The QE is the process by which the BOE substantially increases the flow of credit in a stuck financial system. The QE is a policy of last resort when the descent of interest rates does not achieve the necessary result. The QE process implies that the Bank of England prints money to buy assets, normally state bonds or corporate bonds with AAA rating, banks and other financial institutions. Which usually translates into a weakening of the pound sterling.
The quantitative hardening (QT) is the reverse of the QE, and is applied when the economy is strengthening and inflation begins to rise. While in the QE the Bank of England (BOE) buys state and business bonds from financial institutions to encourage them to grant loans, in the QT the BOE stops buying more bonds and stops reinvesting the main one that expires of the bonds it already has. It is usually positive for sterling pound.
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.
