ECB cuts interest rates by 25 bps

The EURGBP pair remained fragile Thursday after the European Central Bank policy meeting which decided to cut its rate on deposit facility by 25 basis points (bps) to 3.25%.

The ECB reduced its key borrowing rates for the second straight time, with the EURUSD pair remaining stuck near a 10-week low, while as expected, the Pound Sterling remains fragile as soft UK inflation prompts a rate cut bet.

The Eurozone central bank was already expected to cut its key borrowing rates as recent commentaries from officials indicated that they more worried about stagnation in economic growth than taming price pressures.

The central bank has also cut the Main Refinancing Operations Rate by 25 bps to 3.4%.

Market participants expect the ECB to reduce its borrowing rates further in its upcoming monetary policy in December as the Eurozone economic outlook has worsened due to growing expectations that former US President Donald Trump will win the presidential elections on November 5.

Tariffs on imports are expected to rise in Trump’s administration, which will weigh on exports from Europe and Asia.

Meanwhile, the pound gained ground on Thursday after a sharp sell-off on Wednesday. The GBP took a dive after the release of the UK Consumer Price Index (CPI) report for September, which showed a slowdown in price pressures.

The service inflation, a closely watched indication by Bank of England policymakers, decelerated to 4.8%, the lowest level since May 2022.

Soft inflation data has prompted market expectations that the BoE could cut rates in each of the two policy meetings remaining this year, scheduled in November and December.

Before the inflation data, traders were pricing only one interest rate cut in either of the two policy meetings.

(Source: OANDA)