EUR/GBP gains traction to near 0.8350 ahead of BoE’s Greene speech

• EUR/GBP rises to 0.8345 in the first European session on Wednesday.
• The accommodative stance of the BoE continues to weigh on sterling.
• Unfavorable German IFO reports added to fears of a German recession, which could limit the cross’s advantage.

EUR/GBP is back near 0.8345 during the early European session on Wednesday. Dovish comments from Bank of England (BoE) Governor Andrew Bailey weigh on the British pound (GBP). Investors will take more cues from the BoE’s Megan Greene later in the day.

BoE Governor Andrew Bailey said he was “very encouraged” by the downward trajectory of inflation and expected the trajectory of interest rates to be gradually downward. However, Bailey warned consumers not to expect a return to near-zero levels. Bailey’s comments suggested that the UK central bank will continue its easing policy for an extended period, which puts some selling pressure on sterling. Financial markets anticipate that interest rates could fall to 4.5% by the end of 2024 and fall to 3.5% by the end of 2025.

On the euro front, Germany’s IFO index fell for a fifth straight month, indicating the economy remains stuck in stagnation. The IFO German business climate index fell to 85.4 in September from 86.6 in August, below the consensus of 86.0. The current economic assessment index fell to 84.4 from 86.4 previously (revised from 86.5). Finally, the IFO expectations index fell to 86.3 in September from 86.8 in August, in line with expectations.

The decline in Germany’s IFO reports added to fears of a German recession, which could limit upside for the cross in the near term. On Tuesday, ECB Governing Council member Klaas Knot said the central bank would continue to cut interest rates until at least the first half of 2025 to between 2 percent and 3 percent, according to Reuters.