EUR/GBP rises to near 0.8350 on increasing likelihood of further BoE rate cuts

• EUR/GBP received support following BoE policymakers Megan Greene’s speech.
• The BoE’s Greene suggested further interest rate cuts were possible as prices were “moving in the right direction”.
• The euro could face challenges as the ECB has indicated another rate cut could be on the horizon.

EUR/GBP is extending its gains for a second consecutive session, trading around 0.8340 during Asian hours on Wednesday. Traders are assessing the impact of rising geopolitical tensions in the Middle East, which could have adversely affected trading volumes of risk-sensitive currencies.

The British pound (GBP) could face downward pressure as Bank of England (BoE) policymaker Megan Greene indicated that further interest rate cuts are likely as prices “move in the right direction”. However, Greene also warned that a consumption-driven recovery in the UK could trigger a new wave of inflation, according to Bloomberg.

BoE policymaker Greene also said he believed the neutral interest rate had risen since the inflationary shock. While most estimates suggest the neutral rate for the Bank of England is around 3.5%, Greene did not provide a specific figure. The neutral rate refers to the level at which a central bank’s policy neither stimulates nor constrains economic growth.

On the euro side, eurozone inflation eased in September, falling below the European Central Bank’s (ECB) target. The Harmonized Index of Consumer Prices (HICP) rose 1.8% year-on-year in September, down from 2.2% in August. This marks the lowest rate since April 2021.

Despite promising inflation rates in September, the eurozone economy may still face challenges. The ECB cut interest rates to 3.50% in September and indicated another cut could be on the horizon.

Traders await the upcoming Unemployment Rate for the European Union, as well as speeches by ECB members scheduled for Wednesday. On the UK bank, the Bank of England’s Monetary Policy Report Hearings will be closely watched on Thursday.