EUR/GBP sets for third consecutive weekly fall on firm ECB rate cut bets

EUR/GBP remains on the backfoot amid sheer weakness in the Euro.
Sof Eurozone inflation prompts ECB rate cut bets.
The BoE is expected to deliver one more interest rate cut this year.

Sagar Dua FXStreet

The EUR/GBP pair is all set to conclude the week in red for the third straight week. The asset remains on the backfoot as the Euro (EUR) weakens, with financial market participants seeming to be confident that the European Central Bank (ECB) will cut interest rates again in September after announcing the first in the June meeting.

The ECB is almost certain to reduce its key borrowing rates next month as price pressures in the Eurozone economy have declined expectedly in August and its economic outlook is uncertain, with growing fears that the German economy could enter a recession.

Flash Eurozone Harmonized Index of Consumer Prices (HICP) report for August, released in Friday’s European trading hours, reported that the headline and core inflation- which excludes volatile items like energy, food, alcohol and tobacco- decelerated expectedly to 2.2% and 2.8%, respectively. Month-on-month core HICP rose by 0.3% after contracting in July.

Market speculation for ECB rate cuts in September was already firm as German HICP returned to the bank’s target of 2% in August, according to the data released on Thursday.

"Fading inflationary pressure combined with fading growth momentum offers an almost perfect macro backdrop for another rate cut," said Carsten Brzeski, global head of macro at ING, in a note on Thursday.

Meanwhile, the Pound Sterling (GBP) exhibits sheer strength against its major peers on expectations that the Bank of England’s (BoE) policy-easing cycle would be slower. The BoE is expected to cut interest rates one more time this year. The central bank pivoted to policy normalization in its recent policy meeting on August 1.

Economic Indicator

Core Harmonized Index of Consumer Prices (YoY)

The Core Harmonized Index of Consumer Prices (HICP) measures changes in the prices of a representative basket of goods and services in the European Monetary Union. The HICP, – released by Eurostat on a monthly basis, is harmonized because the same methodology is used across all member states and their contribution is weighted. The YoY reading compares prices in the reference month to a year earlier. Core HICP excludes volatile components like food, energy, alcohol, and tobacco. The Core HICP is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish.

EUR/USD keeps the rangebound trade near 1.1850

EUR/USD is still under pressure, drifting back towards the 1.1850 area as Monday’s session draws to a close. The modest decline in spot comes as the US Dollar picks up a bit of support, while thin liquidity and muted volatility, thanks to the US market holiday, are exaggerating price swings and keeping trading conditions choppy.

GBP/USD flirts with daily lows near 1.3630

GBP/USD has quickly given back Friday’s solid gains, turning lower at the start of the week and drifting back towards the 1.3630 area. The focus now shifts squarely to Tuesday’s UK labour market report, which is likely to keep the quid firmly in the spotlight and could set the tone for Cable’s next move.

Gold battle around $5,000 continues

Gold is giving back part of Friday’s sharp rebound, deflating below the key $5,000 mark per troy ounce as the new week gets underway. Modest gains in the US Dollar are keeping the metal in check, while thin trading conditions, due to the Presidents Day holiday in the US, are adding to the choppy and hesitant tone across markets.

AI Crypto Update: Bittensor eyes breakout as AI tokens falter

The artificial intelligence (AI) cryptocurrency segment is witnessing heightened volatility, with top tokens such as Near Protocol (NEAR) struggling to gain traction amid the persistent decline in January and February.

The week ahead: Key inflation readings and why the AI trade could be overdone

It is likely to be a quiet start to the week, with US markets closed on Monday for Presidents Day. European markets are higher across the board and gold is clinging to the $5,000 level after the tamer than expected CPI report in the US reduced haven flows to precious metals.

XRP steadies in narrow range as fund inflows, futures interest rise

Ripple is trading in a narrow range between $1.45 (immediate support) and $1.50 (resistance) at the time of writing on Monday. The remittance token extended its recovery last week, peaking at $1.67 on Sunday from the weekly open at $1.43.