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21 Feb 2025
EUR/GBP remains silent near 0.8300 ahead of key data release from Eurozone, UK
- EUR/GBP steadies as traders adopt caution ahead of Eurozone PMI and UK Retail Sales data.
- The Pound Sterling faced challenges amid ongoing concerns about the UK’s economic outlook.
- The EUR could lose ground as the ECB is expected to deliver quarter-point cuts at every meeting until mid-2025.
EUR/GBP maintains its position following gains in the previous session, trading around 0.8290 during the Asian hours on Friday. The currency cross gained ground as traders remained cautious due to ongoing concerns about the UK’s economic outlook. Bank of England (BoE) Governor Andrew Bailey warned this week that economic growth is expected to remain sluggish, with a softening labor market.
The Pound Sterling (GBP) tried to gain traction after a hotter-than-expected UK Consumer Price Index (CPI) report for January was released on Wednesday. Governor Bailey had already indicated that a short-term inflation spike, driven by volatile energy prices, wouldn’t be persistent.
The EUR/GBP cross may lose ground due to rising expectations of further interest rate reductions from the European Central Bank (ECB). Analysts expect the European Central Bank (ECB) to deliver quarter-point cuts at every meeting until mid-2025. That would bring the deposit rate to 2.0%.
However, ECB Executive Board member Isabel Schnabel stated on Wednesday that the central bank might announce a "halt" in its monetary expansion cycle, as inflation risks have "skewed to the upside" while borrowing costs have significantly eased. Schnabel cautioned that domestic inflation remains "high" and wage growth is "still elevated," particularly amid "new shocks to energy prices."
Meanwhile, traders are closely watching the preliminary HCOB Purchasing Managers’ Index (PMI) data for the Eurozone and Germany, set for release on Friday. On the UK front, attention will be on the upcoming Retail Sales data.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.