On Friday, EUR/GBP saw a slight uptick, with the euro (EUR) marginally outperforming the British pound (GBP) as sellers paused during a four-day decline that had brought the cross to a yearly low.
As of now, EUR/GBP is hovering around 0.8571, heading toward its second consecutive week of losses.
The euro’s recent dip can be linked to the European Central Bank (ECB) likely refraining from further interest rate hikes this year, following unexpected decreases in eurozone inflation data from June. Reports indicated that the Harmonized Index of Consumer Prices (HICP) for June decreased to 2.8% year-on-year, down from 3.2% in May, while core HICP also slowed to 2.4% from 2.6%.
Emmanuel Moulin, a member of the ECB Governing Council, stated on Friday, “We are in a good position,” suggesting that “the balance of risks is in the right place.” He also mentioned, “We tried not to signal a new hiking cycle.”
According to a note from Deutsche Bank, the odds of the ECB raising rates by September are under 50%, and by December, that chance has decreased to about 70%.
This situation has bolstered expectations that the interest rate gap between the ECB and the Bank of England (BoE) will remain steady, which should lend short-term support to the pound sterling.
BoE Governor Andrew Bailey remarked on Wednesday that while “the economy and labor market are softening,” the idea of cutting interest rates “is not on the table at this time.”
Traders were also processing Purchasing Managers’ Index (PMI) data released earlier on Friday. The HCOB Eurozone Composite PMI rose to 50.0 in June, an improvement from 48.5 in May and the highest point in three months.
In contrast, the S&P Global UK Composite PMI Production Index slipped to 49.3 from 49.7 in May, falling below the crucial 50.0 mark for the second consecutive month.
