EUR/GBP rises to near 0.8570 after retracing recent losses, awaits PMI from UK, Eurozone

EUR/GBP recovers its recent losses on Thursday, trading higher around 0.8570 during the Asian session. On Wednesday, Swati Dhingra, a member of the Bank of England (BoE), suggested that delaying interest rate cuts could lead to increased living costs and potentially result in a harsh economic downturn for the United Kingdom (UK). Dhingra reiterated her argument in favor of implementing rate cuts.

BoE Governor Andrew Bailey addressed the United Kingdom Parliament on Tuesday, noting the rapid decrease in inflation in the UK. He emphasized that the central bank doesn't necessitate a definitive return of inflation to target levels before contemplating interest rate cuts. Additionally, BoE Deputy Governor Ben Broadbent highlighted that wage growth and services inflation both exceed the rate, suggesting alignment with sustainable inflation at 2%.

The Euro faced pressure, likely due to market caution amidst reduced expectations for early interest rate cuts globally. However, China's decision to reduce its five-year Loan Prime Rate (LPR) by 25 basis points (bps) to bolster its economy may offer some support for the Euro, considering the commodities' exports from the Eurozone to China.

Meanwhile, the seasonal and non-seasonal adjusted ECB Current Account improved in December compared to the previous month. Additionally, ECB Negotiated Wage Rates (QoQ) increased in the fourth quarter of 2023. ECB President Christine Lagarde recently emphasized wages as "an increasingly important driver of inflation dynamics in the coming quarters."

Traders are likely preparing for potential volatility surrounding the upcoming release of Purchasing Managers Index (PMI) data from both the Eurozone and the United Kingdom, scheduled for Thursday.