Euro faces challenges ahead of ECB rate cut

The EURGBP currency pair is retracing its recent gains from Friday, trading on Monday at around 0.8440 in European markets. The Euro faces challenges as recent eurozone inflation data have solidified expectations of a rate cut by the European Central Bank at the upcoming Thursday policy meeting.

With headline inflation nearing 2% and long-term inflation forecasts holding steady around the same level, the ECB has sufficient justification to ease its monetary policy stance further.

Additionally, last week’s mixed gross domestic product (GDP) data from the Eurozone has reinforced expectations of a potential rate cut by the ECB.

The slowdown in growth is fueling concerns that excessively high interest rates may be stifling economic expansion, echoing remarks made by ECB Executive Board member Piero Cipollone. Cipollone warned of “a real risk that ECB’s stance could become too restrictive,” further highlighting the potential impact of the current monetary policy on growth.

The Pound Sterling (GBP) may remain steady as investors await the U.K.’s employment data for the quarter ending in July, set to be released on Tuesday. This labour market report could shape expectations regarding the Bank of England’s interest rate decisions for the rest of the year.

Estimates suggest the ILO Unemployment Rate may dip to 4.1% from the previous 4.2%.

Meanwhile, Average Earnings, including bonuses, are projected to ease to 4.1%, down from the prior 4.5% figure. Slower wage growth could heighten expectations for further interest rate cuts by the Bank of England, as it would indicate a potential decline in inflation within the services sector.

(Source: OANDA)