EUR/GBP ticks down to near 0.8700, BoE policy takes centre stage

The EUR/GBP pair edges lower to near the round level of 0.8700 during the late Asian trading session on Tuesday. The pair faces a slight selling pressure, while investors shift their focus to the Bank of England’s (BoE) monetary policy announcement on Thursday.

Traders have priced in a 25 basis points (bps) interest rate reduction by the BoE, a move that will put borrowing rates lower to 4%. In the last policy meeting, the BoE held interest rates steady and guided a “gradual and careful” monetary expansion approach.

Investors will pay close attention to the BoE’s monetary policy guidance for the remainder of the year at a time when the United Kingdom (UK) labor demand is facing the heat of an increase in employers’ contribution to social security schemes and inflationary pressures remain elevated.

Analysts at eToro have warned that the British currency could fall on the back foot as the BoE faces a “tricky mix of weak growth combined with high inflation, or stagflation”. Contrary to market expectations, analysts have stated that the BoE should keep “interest rates on hold” until “core inflation eases”.

Meanwhile, the Euro (EUR) faces a slight selling pressure as Eurozone Sentix Investors' Confidence Index tumbled to a three-month low of -3.7 in August, from the 4.5 reading in the previous month, against market expectations of further improvement to an 8.0 reading.