- The EUR/GBP falls while several ECB officials are comfortable with the perspective of three more rates cuts in 2025.
- The euro could win if a fire is remembered in Ukraine and gas supplies resume.
- The operators expect the upcoming data of the United Kingdom labor market and inflation of the consumption price index that will be published at the end of this week.
The EUR/GBP goes back its recent profits from the previous session, quoting around 0.8330 during the Asian hours of Monday. The euro faces bear pressure while several officials of the European Central Bank (ECB) are comfortable with the perspective of three more rates cuts this year, after a reduction of 25 basic points to 2.75% last month.
However, the fall of the EUR/GBP could be limited, since the euro could find support if a fire is reached in Ukraine and gas supplies resume. The reports indicate that the US president, Donald Trump, and the Russian president, Vladimir Putin, have agreed Tuesday to discuss a possible peace agreement.
In addition, the Eur/GBP pair faces challenges after the publication of solid economic data of the United Kingdom on Thursday. The economy of the United Kingdom grew by 1.4% year -on -year in the fourth quarter of 2024, accelerating from 1.0% reviewed up in the previous quarter and exceeding market expectations of 1.1%, according to preliminary estimates. This marks the faster GDP growth from the fourth quarter of 2022. For the whole year 2024, the British economy expanded 0.9%, compared to 0.4% in 2023, driven by an increase of 1.3% in the services sector, in comparison with the growth of 0.4% of the previous year.
The operators will be attentive to the next data from the United Kingdom labor market and inflation of the consumer price index (CPI), which will be published on Tuesday and Wednesday, respectively. Both economic indicators will play a key role in market speculation about whether the Bank of England (BOE) will reduce interest rates again at its March meeting. The BOE recently reduced its key interest rate in 25 basic points (PB) to 4.5% on February 6.
US interest rates
Financial institutions charge interest rates on loans to borrowers and pay them as interest to savers and depositors. They influence the basic types of interest, which are set by central banks based on the evolution of the economy. Normally, central banks have the mandate to guarantee the stability of prices, which in most cases means setting as an objective an underlying inflation rate around 2%.
If inflation falls below the objective, the Central Bank can cut the basic types of interest, in order to stimulate credit and boost the economy. If inflation increases substantially above 2%, the Central Bank usually rises the interest rates of basic loans to try to reduce inflation.
In general, higher interest rates contribute to reinforce the currency of a country, since they make it a more attractive place for world investors to park their money.
The highest interest rates influence the price of gold because they increase the opportunity cost of maintaining gold instead of investing in an asset that accrues interest or depositing effective in the bank.
If interest rates are high, the price of the US dollar (USD) usually rises and, as gold quotes in dollars, the price of low gold.
The federal funds rate is the type to a day that US banks lend each other. It is the official interest rate that the Federal Reserve usually sets at its FOMC meetings. It is set at a fork, for example 4.75%-5.00%, although the upper limit (in this case 5.00%) is the aforementioned figure.
Market expectations on the interest rate of the Federal Reserve funds are followed by the Fedwatch of the CME tool, which determines the behavior of many financial markets in the forecast of future monetary policy decisions of the Federal Reserve.
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.
