|

EUR/GBP trades around 0.8450 after paring losses, assessing ECB policymakers' comments

  • EUR/GBP recovers its daily losses following the remarks from ECB Policymakers.
  • ECB Governing Council member Bostjan Vasle stated that the central bank is not committed to any predetermined rate path.
  • BoE is expected to deliver additional rate cuts following a slowdown in UK wage growth and flat GDP data.

EUR/GBP recovers intraday losses, trading around 0.8430 during the early European hours on Friday. However, the EUR/GBP cross faced challenges following the European Central Bank’s (ECB) interest rate decision on Thursday.

The ECB reduced the Main Refinancing Operations Rate to 3.65% with a 60 basis points (bps) rate cut, in line with market expectations. Additionally, in an interview with Deutschlandfunk early Friday, ECB policymaker and Bundesbank President Joachim Nagel mentioned that "core inflation is also moving in the right direction." Nagel expects the inflation goal to be achieved at the end of next year.

ECB Governing Council member Bostjan Vasle stated on Friday that "we are not committed to any predetermined rate path." Vasle also mentioned that inflation will largely be driven by core inflation and services. Meanwhile, ECB policymaker Olli Rehn emphasized that future policy decisions will continue to be based on an assessment of the inflation outlook, with current uncertainties highlighting the importance of relying on fresh economic data.

Traders are anticipating additional interest rate cuts by the Bank of England (BoE), particularly after this week's data indicated a slowdown in UK wage growth and a flat GDP print for the second consecutive month in July. These economic signals have reinforced expectations of more easing measures by the BoE.

Friday’s Eurozone Industrial Production is anticipated to decrease by 0.3% MoM in July, following a previous 0.1% decline. Meanwhile, the annual data is expected to show a 2.7% decline, an improvement from the previous 3.9% drop. On the UK front, Consumer Inflation Expectations will be eyed.

(This story was corrected on September 13 at 08:55 GMT to say that the ECB interest-rate cut was in line with expectations.)

Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

Author

Akhtar Faruqui

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

More from Akhtar Faruqui
Share:

Editor's Picks

AUD/USD hangs near two-month low, below 0.7000 ahead of Australian CPI report

AUD/USD consolidates below 0.7000 during the Asian session on Wednesday, trading near a two-month low as traders look to the Australian CPI report for more cues on the RBA's policy path. Meanwhile, the US Dollar preserves its bullish undertone amid rising Fed rate-hike bets, which, along with oil-driven inflation fears, push US bond yields to multi-year highs. Moreover, the US-Iran standoff underpins the safe-haven buck and acts as a headwind for the currency pair.

USD/JPY trades below 157.50 as Japan's weak data and bullish USD lend support

USD/JPY extends its consolidative price move during the Asian session on Wednesday, trading below mid-157.00s. Hawkish BoJ expectations, along with intervention risks, underpin the Japanese Yen, though dismal domestic data cap gains. Meanwhile, rising Fed rate hike bets and oil-driven inflation fears push US bond yields to fresh multi-year highs. Moreover, the US-Iran standoff supports a bullish US Dollar and acts as a tailwind for the currency pair.

Gold consolidates below $4,200 as bullish USD and Fed hike bets offset softer bond yields

Gold struggles to capitalize on the previous day's recovery from an eight-week low, consolidating below $4,200 during the Asian session on Wednesday. The overnight slide in oil prices eased the US Treasury bond rout, supporting the bullion. However, Fed rate-hike bets and inflationary concerns keep bond yields near multi-year highs. Moreover, geopolitical uncertainties underpin the safe-haven US Dollar, which, in turn, caps the commodity.

Ethereum sees profit-taking near $2,700 ahead of key US economic data
Ethereum (ETH) has shown signs of profit-taking near $2,700 over the past few days, with rising exchange deposits and a slowdown in exchange-traded fund (ETF) inflows ahead of US inflation and labor market data releases. The top altcoin's Exchange Reserves, which track the total amount of a crypto asset held across exchange wallets, have increased by roughly 125K ETH since Friday.
Silver is more volatile than Gold ahead of PCE and NFP. This chart shows the positioning gap
The market’s attention is focused on American data this week, but there’s something only those with a trained eye may be looking at: Gold and Silver positioning gap. Financial markets are moving on fears, mostly related to persistently high energy prices driven by the Middle East war. Sure, the US Dollar (USD) is strong, but at what cost?
Silver is more volatile than Gold ahead of PCE and NFP. This chart shows the positioning gap
The market’s attention is focused on American data this week, but there’s something only those with a trained eye may be looking at: Gold and Silver positioning gap. Financial markets are moving on fears, mostly related to persistently high energy prices driven by the Middle East war. Sure, the US Dollar (USD) is strong, but at what cost?