A broadly similar outlook for interest rate policy in the two jurisdictions – a major driver for FX markets – does little to change EUR/GBP’s habit over the last two months of seesawing between tepid gains and losses.
According to comments from BoE Governor Andrew Bailey, market forecasts for three 0.25% reductions in 2024 are reasonable, given the BoE isn't observing significant inflationary pressures. Lower interest rates are negative for the Pound Sterling as they reduce foreign capital inflows.
His statements fuel expectations for the BoE to implement interest rate cuts in June, consequently exerting downward pressure on the Pound Sterling (GBP).
The European Central Bank (ECB) is similarly expected to cut interest rates in June. Over the Easter weekend ECB policymaker Robert Holzmann indicated that interest rate cuts in June are probable, but contingent upon the evolution of wage and price data.
Additionally, ECB Governing Council member Yannis Stournaras said on Sunday that there could be a total of four (0.25%) interest rate cuts in 2024, amounting to a cumulative reduction of 100 basis points (bps) by the end of the year
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