Because the ECB is less dovish, the downside appears to be restricted as EUR/GBP stays below 0.8450

EUR/GBP edges lower after two consecutive days of gains, trading near 0.8430 during early European hours on Friday. The downside for the EUR/GBP pair may be limited, as an unexpected rise in Eurozone inflation has fueled expectations that the European Central Bank (ECB) will maintain a cautious stance on rate cuts, avoiding significant reductions.

The preliminary Eurozone Harmonized Index of Consumer Prices rose to 2.0% year-over-year in October, up from the previous 1.7% and exceeding the forecast of 1.9%. Core inflation remained steady at 2.7% year-over-year. This inflation increase is supported by stronger-than-expected economic performance, with the Eurozone economy expanding by 0.4% quarter-on-quarter in Q3—double the growth rate of Q2 and surpassing the predicted 0.2%.

The ECB has underscored that inflationary pressures remain high, largely due to wage growth. At its recent October meeting, the ECB reiterated its "data-dependent and meeting-by-meeting" approach to future policy decisions.

The Pound Sterling (GBP) has weakened since the UK Labour government’s first budget, which included £40 billion in tax increases aimed at addressing public finance gaps and supporting public services, as reported by CNBC.

The UK’s Office for Budget Responsibility (OBR) recently revised its 2024 inflation forecast upward to 2.5% from the previous 2.2% estimate in March. This change has led traders to expect fewer interest rate cuts from the Bank of England (BoE).

 

 

 

 

 

 

 

 

 

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