EUR/GBP revisits two-week low near 0.8380 amid caution ahead of ECB policy

The EUR/GBP pair drops to near two-week low of 0.8380 in Tuesday’s European session. The cross weakens as the Euro (EUR) faces selling pressure, with investors focusing on the European Central Bank’s (ECB) monetary policy announcement on Thursday.

The ECB is almost certain to reduce its Deposit Facility rate by 25 basis points (bps) to 2.75%, with the Main Refinancing Operations Rate sliding to 2.9%. This would be the fourth interest rate cut by the ECB in a row. Dovish ECB bets are based on assumption that inflationary pressures in the Eurozone are sustainably on track to return to the central bank’s target of 2%. Also, investors are worried that potential tariffs by United States (US) President Donald Trump could falter the Eurozone economic outlook.

Market participants are confident that ECB President Chritine Lagarde will deliver a dovish interest rate guidance in the press conference after the policy decision. A string of ECB officials has been confident that policy rates will decline to the neutral rate of 2% by the year-end. The neutral rate is one that neither weighs nor stimulate economic growth.

Analysts at Citi expects the ECB to reduce interest rates by 25 bps at every meeting "until at least the summer".

Meanwhile, investors have underpinned the Pound Sterling (GBP) against the Euro amid expectations that the Bank of England’s (BoE) policy-easing cycle will continue to be gradual. Traders expect the BoE to cut interest rates two or three times this year but are confident that it will cut its borrowing rates by 25 bps in the policy meeting next week.