EUR/GBP sets for third consecutive weekly decline on firm ECB rate cut bets

• EUR/GBP remains on the back foot amid overall euro weakness.
• Sof inflation in the Eurozone drives ECB rate cut bets.
• The BoE is expected to cut one more rate cut this year.

The EUR/GBP pair is set to end the week in the red for the third consecutive week. The asset remains on the back foot as the euro (EUR) weakens, with financial market participants appearing confident that the European Central Bank (ECB) will cut interest rates again in September after announcing the first at its June meeting .

The ECB is all but certain to cut its key lending rates next month as price pressures in the eurozone economy eased in August and its economic outlook is uncertain, with growing fears that the German economy could slip into recession.

The Eurozone Harmonized Index of Consumer Prices (IAPC) flash report for August, released in the European trading session on Friday, reported that headline and core inflation – which excludes volatile items such as energy, food, alcohol and tobacco – decelerated, as expected, to 2.2% and 2.8%, respectively. The month-on-month core HICP rose 0.3% after contracting in July.

Market speculation for an ECB rate cut in September was already firm as the German HICP returned to the bank’s 2% target in August, according to data released on Thursday.

“Easing inflationary pressure combined with waning growth momentum provides an almost perfect macro backdrop for a further rate cut,” Carsten Brzeski, global head of macro at ING, said in a note on Thursday.

Meanwhile, the British pound (GBP) is showing strong strength against its major peers on expectations that the Bank of England (BoE) policy easing cycle will be slower. The BoE is expected to cut interest rates once more this year. The central bank steered toward policy normalization in its recent policy meeting on August 1.