Euro under pressure on dovish ECB

EURGBP extended its gains for the second successive day, trading around 0.8430 during Tuesday’s European session. However, the upside potential for the EURGBP cross may be limited, as the Euro is under pressure amid strong speculation that the European Central Bank will cut interest rates in September.

This would mark the second interest rate cut by the ECB since it began shifting toward policy normalisation in June. Policymakers remain confident that inflation will gradually return to the bank’s 2% target by 2025.

ECB Governing Council member François Villeroy de Galhau stated on Friday, according to Bloomberg, that there are “good reasons” for the central bank to consider cutting its key interest rates in September.

Villeroy de Galhau suggested that action should be taken at the upcoming meeting on September 12, noting that it would be both fair and prudent to decide on a new rate cut.

In the United Kingdom, BRC Like-for-Like Retail Sales increased by 0.8% year-on-year in August, up from a 0.3% rise in July, marking the fastest growth in five months. On Monday, the S&P Global UK Manufacturing PMI held steady at 52.5 for August, consistent with preliminary estimates.

The EURGBP cross may struggle as traders anticipate no rate cut by the Bank of England in the September meeting, while the possibility of a 25 basis points (bps) interest rate cut in the November meeting stands at 87.2%.

Traders await BoE Deputy Governor Sarah Breeden’s role as moderator for a panel on supervisory cooperation at a joint conference hosted by the European Central Bank and the European Banking Authority on Tuesday.

(Source: OANDA)