- EUR/GBP posts modest gains near 0.8280 in Tuesday’s early Asian session.
- The BoE keeps a cautious stance on its easing path.
- ECB is widely expected to cut its key interest rate by 25 bps to 3.00% at its December meeting on Thursday.
The EUR/GBP cross trades with mild gains around 0.8280 during the early European session on Tuesday. However, the upside for the cross might be limited as the rising bets that the Bank of England (BoE) will stick to a gradual script for rate cuts provide some support to the Pound Sterling (GBP) against the Euro (EUR).
The BoE policymaker Swati Dhingra warned that high interest rates are bearing down on the economy by curbing consumer spending and business investment. Dhingra added that she is in favor of “gradual” interest rate reductions and that the long-term neutral interest rate is likely to be in the range of 2.5% to 3.5%.
The expectation that the UK central bank cuts interest rates more gradually compared with other major central banks could lift the GBP. Markets expect the BOE to leave rates unchanged at 4.75% at its December meeting but expect rates to be cut by a further 75 basis points (bps) in total next year.
On the Euro front, markets expect the European Central Bank (ECB) to lower its key deposit rate by a quarter percentage point to 3% on Thursday. Investors then expect five more 25 bps rate cuts next year that will bring down the deposit rate to 1.75%, according to the LSEG. The ECB President Lagarde’s press conference and the updated macroeconomic projections will be closely watched. The ECB is expected to lower its inflation and real GDP growth predictions, which might result in a downward adjustment to ECB easing expectations, weighing on the shared currency.
