Market Analysis

EUR/GBP seeks to reverse its three-day losing streak, hovering around 0.8470 during Monday's European session, following the release of key economic data from Germany.

The German IFO Business Climate index for August registered at 86.6, slightly exceeding the market's expectation of 86.5, though it marked a decline from the previous month's figure of 87.0. The IFO Current Assessment matched forecasts at 86.5, also down from 87.1 in the prior month.

On Friday, European Central Bank (ECB) Governing Council member Olli Rehn suggested that the recent drop in inflation, coupled with economic weakness in the Eurozone, strengthens the case for reducing borrowing costs next month, according to Bloomberg.

The sluggish economic outlook in Europe, particularly in the manufacturing sector, further supports the likelihood of a rate cut in September. Meanwhile, markets are evaluating how rising expectations of Federal Reserve rate cuts might influence borrowing costs in Europe.

At the Jackson Hole symposium, Bank of England (BoE) Governor Andrew Bailey indicated the possibility of faster rate cuts, citing a more rapid-than-expected decline in inflation. However, Bailey stressed the importance of caution until inflation consistently aligns with targets, following last month’s rate reduction from 5.25% to 5.0%.

Despite this, speculation that the BoE’s policy-easing cycle might progress more slowly than those of other major central banks is providing some support to the Pound Sterling (GBP).

Paraphrasing text from "FX Street" all rights reserved by the original author.