Euro eases from four-week highs against the British Pound ahead of BoE’s decision

EUR/GBP eases from four-week highs at 0.8585 but remains above previous highs of 0.8573 so far.
In the Eurozone, GDP, Unemployment and Consumer Confidence data will set the Euro's macroeconomic background.
In the UK, all eyes are on the BoE, which is seen keeping rates on hold amid a split committee.

Guillermo Alcala FXStreet

The Euro (EUR) has eased from fresh four-week highs at 0.8585 against the British Pound (GBP) on Thursday, but maintains its bullish trend intact with price action standing above previous highs. The EUR/GBP trades at 0.8577 at the time of writing, with investors awaiting the release of the Eurozone’s Preliminary Gross Domestic Product (GDP) figures and the monetary policy decision by the Bank of England (BoE).

Eurozone’s economy is expected to have bounced back in the second quarter, showing a 0.2% growth, to retrace the 0.2% contraction seen in the first quarter. Year-over-year, the region’s GDP is seen accelerating to a 0.5% growth from the 0.3% rise witnessed in the first three months of the year.

At the same time, Eurostat will release the Eurozone’s unemployment rate figures for June, which are expected to have remained unchanged at 6.2%, and the European Commission will disclose the final reading of the Consumer Confidence survey, which is foreseen to confirm preliminary figures of a modest improvement to -15.9 in July. from -17.7 in June.

BoE seen leaving rates on hold

The highlight of the day, however, is the BoE’s monetary policy decision. The bank is widely expected to leave its Bank Rate on hold at 3.75% amid a split committee. Investors will be attentive to the number of dissenters and Governor Bailey’s press release to assess the chances of any monetary policy tightening move in the coming months.

In that regard, Rabobank’s FX strategists caution that the Pound may struggle in the coming months as market expectations for tighter BoE policy fade and domestic politics turn more contentious. They argue that “given the potential for disappointment over a lack of rate rises from the Bank this year, coupled with the likelihood of political friction over budget cuts, we see risk of an upside bias in EUR/GBP towards 0.87 on a 3-month view.” This leaves the Euro/Pound cross skewed higher as investors reassess UK rate and fiscal dynamics.

Economic Indicator

Gross Domestic Product s.a. (QoQ)

The Gross Domestic Product (GDP), released by Eurostat on a quarterly basis, is a measure of the total value of all goods and services produced in the Eurozone during a certain period of time. The GDP and its main aggregates are among the most significant indicators of the state of any economy. The QoQ reading compares economic activity in the reference quarter to the previous quarter. Generally, a rise in this indicator is bullish for the Euro (EUR), while a low reading is seen as bearish.

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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