The EUR/GBP currency pair has seen a decline as recent inflation data from the Eurozone enhances the likelihood of a rate cut by the European Central Bank (ECB) this month. Currently, market participants anticipate a 95% chance of the ECB implementing a 25 basis point rate cut in October, marking a third decrease in rates this year. The latest figures reveal that the Harmonized Index of Consumer Prices in the Eurozone fell to 1.8% year-over-year in September, dipping below the ECB’s target of 2% and reaching its lowest point since April 2021.
As the Asian session began on Friday, EUR/GBP retraced its recent gains, trading around 0.8390. This drop can be largely attributed to the unexpected lower inflation reading, which fueled speculation regarding the ECB’s potential monetary easing. Market analysts suggest that the central bank’s decision to cut rates may be influenced by continuous weak inflationary pressures within the region.
In contrast, the Bank of England (BoE) appears to be maintaining a cautious stance. Recent comments from BoE leadership hinted at a possible shift towards more aggressive rate cuts, depending on the evolving inflation landscape. Analysts predict that the BoE will likely implement a 25 basis point cut during its upcoming November policy meeting.
The BoE’s latest Decision Maker Panel survey revealed a slight decrease in one-year ahead expected CPI inflation among UK firms, falling by 0.1% to 2.6% as of Q3. Wage growth expectations remained unchanged at 4.1% on a three-month moving average for September, indicating some stability in the labor market, while overall business uncertainty saw a decline during the same period. This data underscores the challenges facing both central banks as they navigate fluctuating inflation and market expectations.
