EUR/GBP holds near two-week high ahead of ECB, BoE meetings

The EUR/GBP currency pair held near a two-week high of 0.8795 on Tuesday ahead of the outcome of the European Central Bank’s and the Bank of England’s policy meetings.

The European Central Bank is largely expected to keep its main refinancing operations rate intact at 2.15% at its December 18th policy meeting.

And, the ECB deposit facility rate is expected to be kept at 2.00%.

ECB policy makers continued to argue that the current stance remained appropriate and that short-term inflation deviations did not require a response.

ECB officials have stressed that the next move could go either direction, reinforcing their neutral posture. Recent economic data supported this view, while markets have begun assigning a modest probability to a rate hike next year.

With the economic and inflation outlook broadly in line with the ECB’s September forecasts, several policy makers argued that the monetary easing cycle might have already reached its endpoint, as long as current favorable conditions are present.

Meanwhile, the Bank of England is expected to lower its benchmark interest rate by 25 basis points to 3.75% at its December 18th meeting.

In November, the BoE left borrowing costs without change at 4%, while four policy makers voted in favor of a 25 basis point rate cut to 3.75%.

BoE policy makers acknowledged that UK CPI inflation had peaked and underlying disinflation had shown progress.

A subdued economy and rising labor market slack were also factors supporting disinflation, the BoE had said.

Policy makers also noted risks over achieving the 2% inflation target were now more evenly balanced. Persistent inflation has become a lesser concern, while downside risks from weak demand have risen.

In case disinflation continued as anticipated, the bank rate would likely move lower at gradual pace, the BoE had said.

The EUR/GBP currency pair was last little changed on the day to trade at 0.8783.