EURGBP sees third weekly fall on firm ECB rate cut bets

The EURGBP concluded the week in red for the third straight week. The currency pair remains on the backfoot as the Euro continues to weaken, with financial market participants seeming to be confident that the European Central Bank will cut interest rates again in September after announcing the first in the June meeting.

The ECB is almost certain to reduce its key borrowing rates in September as price pressures in the Eurozone economy have declined expectedly in August and its economic outlook is uncertain, with growing fears that the German economy could enter a recession.

The flash Eurozone Harmonized Index of Consumer Prices (HICP) report for August, released in Friday’s European trading hours, reported that the headline and core inflation- which excludes volatile items like energy, food, alcohol and tobacco- decelerated to 2.2% and 2.8%, respectively. Month-on-month core HICP rose by 0.3% after contracting in July.

Market speculation for ECB rate cuts in September was already firm as German HICP returned to the bank’s target of 2% in August, according to the data released on Thursday.

“Fading inflationary pressure combined with fading growth momentum offers an almost perfect macro backdrop for another rate cut,” said Carsten Brzeski, global head of macro at ING, in a note on Thursday.

Meanwhile, the Pound Sterling (GBP) exhibits sheer strength against its major peers on expectations that the Bank of England’s policy-easing cycle would be slower.

The BoE is expected to cut interest rates one more time this year, while the central bank pivoted to policy normalisation in its recent policy meeting on August 1.

(Source: OANDA)