During early European trading on Wednesday, the EUR/GBP cross remained on the defensive around 0.8245. Rising speculation that the European Central Bank (ECB) will cut interest rates again at its December meeting continues to weaken the euro (EUR) against the pound (GBP).
Investors may be more inclined to wait and see ahead of the European Central Bank’s interest rate decision on Thursday. The ECB is expected to cut its deposit facility rate to 3.0% from 3.25%. This will be the ECB’s third consecutive interest rate cut amid the gloomy outlook for the euro zone. “While there are good reasons for the ECB to accelerate the pace of policy easing by cutting interest rates (by half a point), the majority of Governing Council members appear to prefer a quarter-point cut,” analysts at Capital Economics noted.
On the other hand, Bank of England (BOE) policymakers hinted at gradual interest rate cuts. “The Bank of England’s recent signal about a gradual rate cut has been very strong, suggesting that the chances of a rate cut next week are very low,” said JPMorgan economist Allan Monks.
Traders are currently betting that the Bank of England will cut interest rates only three times between now and the end of 2025, taking banking rates down a total of 75 basis points. Expectations that the Bank of England may reduce borrowing costs more slowly than the European Central Bank provide some support for the pound and create headwinds for the EUR/GBP cross.
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