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

EUR/GBP trades subduedly around 0.8700, while focus shifts to the BoE’s monetary policy on Thursday.
The BoE is expected to cut interest rates by 25 bps to 4%.
Eurozone’s investors' confidence has declined significantly in August.

Sagar Dua FXStreet

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.

Economic Indicator

BoE Interest Rate Decision

The Bank of England (BoE) announces its interest rate decision at the end of its eight scheduled meetings per year. If the BoE is hawkish about the inflationary outlook of the economy and raises interest rates it is usually bullish for the Pound Sterling (GBP). Likewise, if the BoE adopts a dovish view on the UK economy and keeps interest rates unchanged, or cuts them, it is seen as bearish for GBP.

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