EUR/GBP returns to familiar range following downward revision of Eurozone GDP

• EUR/GBP slips from intraday highs after Q2 Eurozone GDP growth revised down.
• The data increases the chances that the ECB will cut interest rates in September, weighing on the euro.
• EUR/GBP is capped by sterling strength on expectations that the BoE will cut rates more slowly amid stronger growth.

EUR/GBP offered anticipated gains on Friday as traders sold the euro (EUR) after the release of eurozone gross domestic product (GDP) data, which showed a downward revision in the second quarter from the initial estimate. This brings the pair back into the week’s early 0.8420-30s range.

Eurozone GDP grew at a slower quarterly pace of 0.2% in Q2, compared with 0.3% in the previous estimate and below 0.3% in Q1. The downward revision increases the chances of the European Central Bank (ECB) cutting interest rates at its meeting in September. This in turn affects EUR/GBP as lower interest rates are negative for the euro as they reduce foreign capital inflows.

The slowdown in growth is also playing into fears that too high interest rates will stifle growth, reinforcing comments from ECB Executive Board member Piero Cipollone, who said in an interview with a French newspaper this week that “there is a real risk that ( the ECB’s position) could become too restrictive.”

EUR/GBP is further constrained by the strength of the British pound (GBP), which sees gains from investors’ view that the Bank of England (BoE) will pursue a shallower easing path – cutting interest rates at a slower pace – ​​than most other central centers. banks, including the ECB. The BoE is only expected to cut by 0.25% before the end of 2024 as the recent string of strong data points to the economy continuing to grow and service sector inflation remaining high.

The ECB, on the other hand, is expected to cut interest rates by at least 0.50% before the end of the year. In a Reuters poll from Aug. 30 to Sept. 5, 85 percent of economists expect the ECB to cut interest rates at its September meeting and again in December.