Volatility in the EUR/GBP currency pair will remain subdued

Investing.com — The European Central Bank and the Bank of England are likely to adopt “similar” monetary policy stances going forward, although the BoE is set to take a slightly dovish approach, according to analysts at UBS.

In a note to clients, analysts added that the economic situation in both regions is “fairly similar, with a slight tilt to strength in the latter and weakness in the former.”

For these reasons, they forecast the euro-GBP currency pair to trade “a bit weaker” but hold steady near the current range of £0.83 to £0.85. Volatility in the currency pair, they added, will “remain subdued.”

The comments come after the Bank of England left its benchmark interest rate unchanged at 5.0% last week, with officials saying they wanted to take a gradual approach to possible future policy easing after a rate cut in August.

Economists had widely expected the decision, particularly after UK consumer price growth was 2.2% on an annual basis last month, close to the bank’s medium-term target, but services inflation was hot at 5.6% annually. Price increases in the services sector are seen as a key data point for the BoE.

The prospect of potentially sticky services inflation in the UK has led many forecasters to bet that the BoE will move more slowly than its peers to launch rate cuts.

Other indicators of price pressures were mixed. Wage growth, another key measure tracked by the BoE, cooled and the broader economy stagnated in July.

Meanwhile, in early September, the European Central Bank cut borrowing costs for the second time in three months.

The rate-setting Board of Governors said it cut its deposit facility rate — the mechanism by which it conducts monetary policy — by 25 basis points to 3.5 percent. In July, the ECB left its benchmark deposit rate unchanged at 3.75%, after cutting it from an all-time high of 4% in June.

Since that meeting, headline inflation in the eurozone currency area has slowed to a two-year low of 2.2%.

However, speaking at a press conference following the decision, ECB President Christine Lagarde stressed that the central bank was not “committed” to a particular rate path and would remain data-dependent before making future policy moves.