EUR/GBP remains subdued near 0.8350 due to dovish sentiment surrounding ECB policy stance

EUR/GBP faces challenges as traders expect the ECB to deliver a rate cut in December.
The European Commission forecasts 0.8% growth for the Euro Area in 2024, maintaining its projection from the Spring estimate.
UK Economist Ruth Gregory expects that the BoE will hold interest rates steady at 4.75% in December.

Akhtar Faruqui FXStreet

EUR/GBP remains stable near 0.8350 during early European trading hours on Monday. The EUR/GBP cross faces headwinds as the Euro remains under pressure due to the European Central Bank's (ECB) dovish outlook, with a policy rate cut anticipated at its December meeting.

In its Autumn 2024 forecast, the European Commission predicts 0.8% growth for the Euro Area in 2024, unchanged from its Spring estimate. However, the growth projection for 2025 has been slightly lowered to 1.3% from 1.4%, while the Eurozone economy is expected to expand by 1.6% in 2026.

Commenting on the outlook, EU Economy Commissioner Paolo Gentiloni remarked, "As inflation continues to ease and growth in private consumption and investment gains momentum, coupled with record-low unemployment, growth is expected to gradually accelerate over the next two years."

The UK economy expanded by 0.1% quarter-on-quarter in the three months ending September, slowing from the 0.5% growth seen in Q2 and missing market expectations of a 0.2% increase. Year-on-year, UK GDP grew by 1.0% in Q3, aligning with forecasts and improving on the 0.7% growth recorded in Q2. On a monthly basis, GDP contracted by 0.1% in September, reversing a 0.2% gain in August.

Capital Economics’ Deputy Chief UK Economist Ruth Gregory reiterated their expectation that the Bank of England (BoE) will maintain rates at 4.75% in December, with a 25-basis-point rate cut anticipated in February.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

Author

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

AUD/USD eyes 0.7150 barrier nine-day EMA

AUD/USD inches higher after registering modest losses in the previous day, trading around 0.7130 during the Asian hours. The technical analysis of the daily chart indicates that the pair is moving sideways within the rectangle pattern, suggesting a consolidation as neither the bulls nor the bears have enough momentum to take control of the market.

USD/JPY trades below 160.00 intervention threshold; bullish bias intact

The USD/JPY pair attracts some sellers during the Asian session amid fears that authorities will step in again to prop up the Japanese Yen. Furthermore, the Israel-Lebanon truce prompts some profit-taking around the US Dollar and exerts downward pressure on the currency pair.

Gold meets contention near $4,420…for now

Gold extends its recovery past the $4,500 mark per troy ounce on Thursday. The yellow metal’s advance comes amid the resurgence of some selling interest around the, improving risk sentiment, and declining US Treasury yields across the curve.

Bitcoin’s massive storm is back: Why the sell-off is far from over

Bitcoin price action over the last few weeks has felt less like a normal, healthy correction and more like a slow grinding crash that continues to wreak havoc on holdings and trading accounts. And everything suggests that the dramatic crash isn’t over.

Nonfarm payrolls: Testing the limits of Fed policy patience

The upcoming nonfarm payrolls report for May will provide the final update on the US labor market before Kevin Warsh attends his first policy meeting as the new Fed Chair later this month.

Recession on paper: What really moves the Canadian Loonie now?

Statistics Canada handed the headline writers a gift and the analysts a headache. Real GDP shrank 0.1% on an annualized basis in the first quarter, and with the fourth quarter of 2025 revised down to a 1.0% contraction, that is two negative quarters in a row, the textbook definition of a technical recession and Canada's first since the pandemic.