EUR/GBP dips to near 0.8400, awaits Eurozone HICP for August

• EUR/GBP extends losing streak on dovish sentiment around BoE, keeping rates higher for longer.
• BoE Governor Bailey also advised against rushing further rate cuts at the Jackson Hole Symposium last week.
• Falling inflation in Germany and Spain fueled expectations of an interest rate cut by the European Central Bank.

EUR/GBP continues its losing streak for an eighth straight session, trading around 0.8410 in early European hours on Friday. The EUR/GBP cross could extend its decline as Sterling (GBP) receives support from dovish sentiment around the Bank of England (BoE) holding interest rates higher for a longer period compared to the European Central Bank (ECB ).

At the Jackson Hole Symposium last week, BoE Governor Andrew Bailey said the second-round effects of inflationary pressures would be less significant than anticipated. However, Bailey also advised against rushing further interest rate cuts, according to Reuters. The BoE cut rates by 25 basis points to 5% on August 1, and money markets are pricing in a further 40 basis points of cuts by the end of the year.

National house prices in the UK rose 2.4% year-on-year in August, up from 2.1% in July. This marked the sixth straight period of house price growth and the strongest rise since December 2022. However, on a monthly basis, house prices fell 0.2% after rising 0.3% in July, defying market expectations of a 0.3% increase.

In the euro zone, consumer price index (CPI) data from Germany and Spain indicated that inflation cooled further in August. This development fueled expectations of an interest rate cut by the European Central Bank (ECB), weakening the euro and undermining the EUR/GBP cross.

Carsten Brzeski, ING’s head of global macroeconomics, described the result as “great news for the ECB”, noting that a slowing economy and falling inflation create a “perfect macro background” for lower interest rates. However, Brzeski warned that services inflation remains a concern.

Traders now look forward to the flash estimate of the Eurozone Harmonized Index of Consumer Prices (HICP) for August and the unemployment rate for July later in the day, looking for further information on the state of the Eurozone economy.