- EUR/GBP trades with mild losses around 0.8795 in Wednesday’s early European session.
- UK PM Starmer seeks lower interest rates to boost the economy, which might cap the GBP’s upside.
- Eurozone inflation edged higher in November, supporting the ECB to hold the rate.
The EUR/GBP cross posts modest losses near 0.8795 during the early European trading hours on Wednesday. Nonetheless, the potential downside for the cross might be limited amid dovish expectations from the Bank of England (BoE), which might weigh on the Pound Sterling (GBP).
Markets expect a potential interest rate cut from the UK central bank in December. Concerns over higher overall taxation levels following the announcement of the UK autumn budget, along with softer inflation and a cooling labor market, add weight to the prospect of further BoE policy shifts. This, in turn, could exert some selling pressure on the GBP in the near term.
UK Prime Minister Keir Starmer highlighted the need to bring inflation and interest rates down to boost business investment and economic growth. A majority of analysts expect the BoE to reduce its interest rates to 3.75% in December, with markets pricing in a 90% probability, according to Reuters.
Eurozone inflation unexpectedly ticked up in November, suggesting that further rate cuts from the European Central Bank (ECB) are unlikely under current economic conditions. The ECB left its main interest rates unchanged at its meetings in September and October, with the deposit rate remaining at 2.00%. The EUR could receive support from the growing acceptance that the ECB is done cutting interest rates. ECB President Christine Lagarde said last week that borrowing costs are at the “right level.”
