- The EUR/GBP stabilizes around 0.8420 in the first bars of the European session on Thursday.
- The ECB is expected to cut the interest rates at 25 basic points (PBS) on Thursday, carrying its ease rate at 2.0%.
- The United Kingdom is temporarily exempt from 50% tariffs on Trump’s steel.
The EUR/GBP cross operates in a flat tone about 0.8420 during the first hours of the European session on Thursday. Operators prefer to stay out of the margin waiting for the decision on the interest rates of the European Central Bank (ECB) later on Thursday.
The inflation figures of the Harmonized Consumer Price Index (IAPC) of Tuesday’s Eurozone increased the possibility that the ECB cuts interest rates at the June meeting. This, in turn, could weaken the shared currency in front of the GBP. The markets have discounted almost 99% of a reduction of 25 basic points (PBS) at the ECB deposit fee rate on Thursday, according to LSE data. The cut would carry the ease rate to 2.0%, its lowest level since January 2023.
Jack Allen-Reynolds, an attached chief economist of the Eurozone, said that the ECB is expected to perform more feat cuts, forecasting two reductions more than 25 PBS in September and December. The operators will also closely follow the BCE press conference, since it could offer some clues about inflation and economic perspectives.
The United Kingdom has been temporarily exempt from the executive order of US President Donald Trump that doubles tariffs on steel and aluminum from 25% to 50%. However, uncertainty persists on deadlines and final tariff rates. Any sign of renewed commercial tensions between the US and the United Kingdom could weigh on the sterling pound and create a tail wind for the crossing.
Meanwhile, the growing expectation that the Bank of England (BOE) Pause its interest rate cuts could support the GBP. Future markets have discounted that interest rates will fall around 38 PBS by the end of this year, which implies a 25 -bs cut and a probability of approximately 50% of a second reduction, according to a Reuters report.
BCE FAQS
The European Central Bank (ECB), based in Frankfurt (Germany), is the euro zone reserve bank. The ECB sets interest rates and manages the monetary policy of the region.
The main mandate of the ECB is to maintain prices stability, which means maintaining inflation around 2%. Its main tool to achieve this is to raise or lower interest rates. Relatively high interest rates often translate into a stronger euro, and vice versa.
The BCE Governing Council adopts monetary policy decisions in meetings that are held eight times a year. The decisions are adopted by the directors of the national banks of the euro zone and six permanent members, including the president of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can launch a political tool called Quantitative Easing (quantitative relaxation). The QE is the process by which the ECB prints euros and uses them to buy assets (normally state or business bonds) to banks and other financial institutions. The result is usually a weaker euro ..
The QE is a last resort when it is unlikely that a simple decrease in interest rates achieves the price stability objective. 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.
The quantitative hardening (QT) is the reverse of the QE. It is carried out after the QE, when economic recovery is underway and inflation begins to increase. While in the QE the European Central Bank (ECB) buys state and business bonds from financial institutions to provide liquidity, in the QT the ECB stops buying more bonds and stops reinvesting the main one that overcomes the bonds it already has. 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.
