The EUR/GBP pair has continued its upward trend for the third straight session, trading around 0.8530 during Monday’s European hours. The rise in the currency pair is largely driven by the HCOB Eurozone Manufacturing PMI, which climbed to 47.3 in May from 45.7 in April. Although slightly below the preliminary estimate of 47.4, this marks the highest reading since March 2023 and signals the slowest decline in the Eurozone manufacturing sector in over a year.
Investors have largely priced in the expectation that the European Central Bank (ECB) will cut interest rates by 25 basis points on Thursday. However, there is speculation that the ECB might signal a pause in rate cuts for July and adopt a slower pace of reductions in the coming months. According to Reuters, financial markets have already factored in around 57 basis points of ECB rate cuts for 2024. Market participants will be closely watching ECB President Christine Lagarde’s press conference for any new indications regarding the future pace of rate cuts. Any dovish commentary from the ECB could weigh on the Euro, potentially creating a headwind for the EUR/GBP cross.
In the United Kingdom, there is significant uncertainty surrounding the Bank of England’s (BoE) rate-cut timeline. Despite a notable drop in the UK’s annual headline inflation to 2.3% in April, BoE policymakers remain concerned about the sluggish disinflation progress within the services sector. The Citi/YouGov survey highlighted that UK public expectations for inflation over the next 12 months have decreased to 3.1% in May, the lowest level since July 2021, according to a Reuters report on Friday.
This mixed economic backdrop has led to cautious investor sentiment regarding the BoE’s next moves. The ongoing concerns over inflation and the BoE’s future rate-cut decisions add another layer of complexity to the EUR/GBP dynamics.
Trade Idea:
Consider entering a long position on EUR/GBP around 0.8530 with a target of 0.8600 and a stop-loss at 0.8500. This strategy capitalizes on the current upward momentum and the potential for further Euro strength if the ECB’s actions align with market expectations.