EUR/GBP extends the rally above 0.8600, all eyes on the BoE rate decision

The EUR/GBP cross extends its upside around 0.8605 during the early Europen trading hours on Thursday. The cross edges higher for the third consecutive day ahead of the Bank of England (BoE) interest rate decision. Traders are betting the BoE could cut the interest rate before the European Central Bank (ECB), which weighs on the Pound Sterling (GBP) against the Euro (EUR). 

The Bank of England is anticipated to keep its main interest rate at a 16-year high at 5.25% at its May meeting on Thursday. Investors will take more cues from BoE Governor Andrew Bailey's speech about the timing of cutting the interest rate. BoE’s Bailey said last week that rate cuts were in play at future meetings as inflationary risks have eased.

These remarks have prompted the expectation that the BoE will lower its borrowing costs before the ECB, which exerts some selling pressure on the Cable. Research director at XTB Trading Group, Kathleen Brooks, noted that “the market is expecting the first rate cut from the BOE between June and August.” 

On the Euro front, the attention will shift to the ECB Monetary Policy Meeting Accounts on Friday, which might offer some hints about the economic outlook and the interest rate trajectory. The ECB policymaker Pierre Wunsch said on Wednesday that he sees a path for the first-rate cut this year, although the outlook remains foggy. He further stated that he expects the central bank to cut 50 basis points (bps), but it will depend on incoming economic data.