The EUR/GBP pair has extended its gains for the third consecutive session, trading around 0.8460 during the European session on Monday. The British Pound (GBP) remains under pressure following the Bank of England’s (BoE) dovish pause last week, which has heightened expectations for an interest rate cut at the August monetary policy meeting.

In Thursday’s BoE statement and minutes, officials signaled they are nearing a decision to cut interest rates. ING’s FX Strategist Francesco Pesole noted, “Three rate cuts in 2024 starting from August remain ING’s base case,” which is more dovish than the two cuts currently anticipated by the market. Additionally, the flash UK PMIs released on Friday indicated that private sector business activity in June expanded at its slowest rate since last November, further pressuring the Pound Sterling and bolstering the EUR/GBP cross.

However, the upside for the EUR/GBP cross might be limited due to uncertainties surrounding the outcome of a snap election in France, which could raise concerns about worsening the fiscal situation in the Eurozone’s second-largest economy.

On Monday, the headline German IFO Business Climate Index fell to 88.6 in June from 89.3 in May, below the market expectation of 89.7. The Current Assessment Index remained unchanged at 88.3, while the Expectations Index dropped to 89.0 from 90.4. This weaker German data could exert pressure on the Euro, further limiting the potential upside of the EUR/GBP cross.

Trade Idea

The British Pound is under pressure due to expectations of BoE rate cuts and weak UK PMI data. Although weaker German IFO data might limit the upside, the overall sentiment remains favourable for the Euro against the Pound. A tight stop-loss is advised due to potential volatility from political uncertainties in the Eurozone.