Key Moments
- EUR/GBP is trading near 0.8550, close to a three-week high after rebounding from a more than one-year low.
- Analysts at OCBC highlighted growing UK fiscal concerns and reiterated expectations for EUR/GBP to recover toward 0.87 over the coming months.
- Markets are awaiting the Bank of England’s rate decision on Thursday, while the ECB is seen as considering another rate hike as early as September.
EUR/GBP Nears Three-Week High on Renewed Pound Pressure
EUR/GBP strengthened on Tuesday, extending its advance from the more than one-year low reached earlier this month. The cross is trading around 0.8550, hovering near a three-week high, as the British Pound (GBP) remains under pressure.
The move is being driven by diverging interest rate expectations between the European Central Bank (ECB) and the Bank of England (BoE), combined with mounting concerns over the United Kingdom’s fiscal position. These factors are keeping sentiment toward the Pound fragile and supporting the Euro (EUR) in the cross.
Analysts Flag Fiscal Constraints and Softer GBP Sentiment
Analysts at OCBC observe a notable shift in investor sentiment toward the British currency, stating that “some of the recent optimism” now having “faded” as earlier hopes for “greater political stability in the UK are increasingly giving way to concerns over fiscal constraints.”
They emphasize that “this reassessment has further to run, particularly as higher energy prices add to fiscal pressures,” which in their view leaves the Pound on weaker ground. Reflecting this outlook, OCBC reiterates that it “continues to expect EURGBP to recover toward 0.87 over the coming months, in line with our broader view that GBP remains range-bound.”
BoE Set for Decision as Inflation Cools and Labor Market Softens
The upcoming BoE policy announcement on Thursday is a key focus for traders. The central bank currently has room to proceed cautiously, as the inflationary effects of higher Oil prices have, so far, remained limited in the UK.
Headline inflation declined to a 15-month low of 2.6% in June, easing pressure on policymakers to tighten further. At the same time, signs of softness in the labor market provide an additional argument for keeping borrowing costs unchanged.
Nevertheless, inflation risks have not fully disappeared, particularly with energy prices holding above pre-war levels. Even so, most economists polled by Reuters expect the BoE to leave interest rates steady through the end of the year.
ECB Outlook Supports Euro Advantage Over Pound
While the BoE is widely expected to stay on hold, the ECB is seen as more inclined toward further tightening. Market participants anticipate that the ECB may consider another rate increase as early as September, which is lending relative support to the Euro against the Pound.
The ECB kept interest rates unchanged last week and stressed that future decisions will depend on incoming economic data, the inflation outlook, and associated risks. Attention now turns to the preliminary release of the Eurozone Harmonized Index of Consumer Prices (HICP) for July, due on Friday, which could shape expectations for the next policy move.
British Pound Intraday Performance Against Major Currencies
The table below shows the percentage change of the British Pound (GBP) against major currencies today. The British Pound has been strongest versus the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | – | 0.05% | 0.10% | 0.11% | -0.13% | 0.36% | 0.07% | 0.04% |
| EUR | -0.05% | – | 0.05% | 0.07% | -0.20% | 0.31% | 0.02% | -0.01% |
| GBP | -0.10% | -0.05% | – | 0.02% | -0.21% | 0.27% | -0.01% | -0.03% |
| JPY | -0.11% | -0.07% | -0.02% | – | -0.25% | 0.24% | -0.05% | -0.06% |
| CAD | 0.13% | 0.20% | 0.21% | 0.25% | – | 0.50% | 0.19% | 0.19% |
| AUD | -0.36% | -0.31% | -0.27% | -0.24% | -0.50% | – | -0.27% | -0.32% |
| NZD | -0.07% | -0.02% | 0.01% | 0.05% | -0.19% | 0.27% | – | -0.01% |
| CHF | -0.04% | 0.00% | 0.03% | 0.06% | -0.19% | 0.32% | 0.00% | – |
The heat map reflects percentage moves of major currencies relative to each other. The base currency is taken from the left-hand column, while the quote currency is taken from the top row. For instance, selecting the British Pound from the left column and moving across to the US Dollar cell shows the percentage change for GBP (base)/USD (quote).
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