UK economy rebounds faster than expected

The EURGBP cross remains on the defensive around 0.8425 during the early European session on Thursday, trading with mild losses after the monthly UK Gross Domestic Product data.

The UK economy grew more than expected in May after stagnating in April, with the GDP expanding at 0.4% MoM. This figure beat market expectations of 0.2% in the reported period, according to National Statistics on Thursday.

The Pound Sterling attracted modest sellers in response to the stronger UK data.

At the same time, uncertainty has risen surrounding the Bank of England’s decision to begin lowering its borrowing costs from the August meeting.

BoE policymaker Catherine Mann signalled caution on rate cuts, warning of a resurgence in UK inflation and rapid increases in service prices. Mann added that uncertainty about wage behaviour in the UK is unlikely to disappear soon, and policy decisions need to be robust to this.

Meanwhile, BoE policymaker Jonathan Haskell said that he does not want to cut interest rates, as inflationary pressures remain in the job market and it is unclear how rapidly they will fade.

Investors are now pricing in nearly 60% odds that the BoE will cut interest rates on August 1, the first time since 2020.

On the Euro front, European Central Bank governing council member Fabio Panett said on Tuesday that the ECB can continue to lower interest rates, adding that wage growth, a central driver of inflation, was “not warranted.”

Traders are raising their bets on an ECB rate cut this year, which might cap the cross’s upside in the near term.

(Source: OANDA)