EUR/GBP recovers intraday losses ahead of BoE policy decision

EUR/GBP revives intraday losses as BoE policy meeting takes center stage.
The BoE is expected to cut interest rates by 25 bps to 4.75%.
The Euro is expected to remain under pressure due to multiple headwinds.

Sagar Dua FXStreet

The EUR/GBP reverses intraday losses and bounces back to near 0.8330 in the European trading session on Thursday. The cross rebounded strongly after posting a fresh weekly low near 0.8310 ahead of the Bank of England’s (BoE) interest rate decision, which will be announced at 12:00 GMT.

The BoE is widely anticipated to cut interest rates by 25 basis points (bps) to 4.75%. This will be the second interest rate cut by the BoE this year. The BoE initiated the policy-easing cycle in the August policy meeting in which it cut interest rates by 25 bps to 5%, but it kept them steady in the September meeting.

Out of the nine-member led Monetary Policy Committee (MPC), seven members are expected to vote in favor of a rate reduction, while two are expected to support leaving interest rates unchanged at 5%. BoE external MPC member Catherine Mann, an outspoken hawk, is likely to be one of those who would support keeping rates stable.

Investors will pay close attention to BoE Governor Andrew Bailey’s press conference to get cues about the impact of Republican Donald Trump’s victory in the United States (US) presidential elections and United Kingdom (UK) Labour’s firm Autumn Forecast Statement on the inflation and the interest rate outlook.

Though the Euro (EUR) has shown a strong recovery against the Pound Sterling (GBP) ahead of the BoE policy meeting, its near-term outlook remains vulnerable due to multiple tailwinds such as weak Eurozone economic prospects due to Trump’s victory, the collapse of German three-party coalition and expectations that the European Central Bank (ECB) could fasten its policy-easing cycle.

On the economic data front, month-on-month German Industrial Production data for September has come in worse than expected. The Industrial Production declined by 2.5% after expanding by 2.6% in August. Economists expected the data to have contracted by 1%.

(The story was corrected at 14:45 GMT on Thursday to say in the first paragraph that "The EUR/GBP reverses intraday losses and bounces back to near 0.8330 not 0.8300.)

Economic Indicator

BoE Interest Rate Decision

The Bank of England (BoE) announces its interest rate decision at the end of its eight scheduled meetings per year. If the BoE is hawkish about the inflationary outlook of the economy and raises interest rates it is usually bullish for the Pound Sterling (GBP). Likewise, if the BoE adopts a dovish view on the UK economy and keeps interest rates unchanged, or cuts them, it is seen as bearish for GBP.

EUR/USD deflates to fresh lows, targets 1.1600

The selling pressure on EUR/USD now gathers extra pace, prompting the pair to hit fresh multi-week lows in the 1.1625-1.1620 band on Friday. The continuation of the downward bias comes in response to further gains in the US Dollar as market participants continue to assess the mixed release of US Nonfarm Payrolls in December.

GBP/USD breaks below 1.3400, challenges the 200-day SMA

GBP/USD remains under heavy fire and retreats for the fourth consecutive day on Friday. Indeed, Cable suffers the strong performance of the Greenback, intensified post-mixed NFP, and trades at shouting distance from its critical 200-day SMA near 1.3380.

Gold flirts with yearly tops around $4,500

Gold keeps its positive bias on Friday, adding to Thursday’s advance and challenging yearly highs in the $4,500 region per troy ounce. The risk-off sentiment favours the yellow metal despite the firmer tone in the Greenback and rising US Treasury yields.