EUR/GBP hovers around 0.8550 as traders adopt caution ahead of BoE’s decision

EUR/GBP extended its winning streak for the fourth consecutive day, trading near 0.8550 during the Asian hours on Thursday. The currency cross remains steady ahead of the Bank of England’s (BoE) interest rate decision scheduled later in the day.

The BoE is widely expected to keep its interest rate steady at 4.25% in June's policy meeting following Wednesday’s Consumer Price Index (CPI) report, which showed an inflation rate of 3.4% year-over-year in May, remaining well above the BoE’s 2% target. The reading came in as expected against the 3.5% in April. However, markets are still pricing in a 25 basis point rate cut in August.

The EUR/GBP cross also receives support as the Euro (EUR) gains ground against its peers, supported by the hawkish tone surrounding the European Central Bank’s (ECB) policy outlook. ECB President Christine Lagarde said that rate reductions are coming to an end as the central bank is now “in a good position” to deal with prevailing uncertainties.

On Wednesday, ECB Governing Council member Mario Centeno highlighted his concerns about the European economy's growth prospects and argued that inflation will not be at 2% without growth. "We need a stronger economy to be compatible with 2% inflation, that's my main position," Centeno added. Moreover, another member, Fabio Panetta, assured the ECB’s flexible approach regarding monetary policy decisions amid heightened risks due to the Israel-Iran conflict. Panetta added that Eurozone inflation is likely to remain below the 2% target for an extended period, per Reuters.