EUR/GBP slips below 0.8400 on growing likelihood of an ECB rate cut

• EUR/GBP loses ground as weaker eurozone inflation data boosts the likelihood of an ECB rate cut this month.
• Markets are reflecting a 95% probability of a 25 basis point rate cut by the European Central Bank in October.
• The BoE DMP survey showed that, on a year earlier, UK firms’ expected inflation fell by a further 0.1% in Q3.

EUR/GBP is retracing recent gains, trading around 0.8390 during the Asian session on Friday. This downside could be attributed to lower inflation in the eurozone, which is raising expectations for an interest rate cut by the European Central Bank (ECB) in October, which would mark the central bank’s third rate cut this year.

Earlier this week, the Harmonized Index of Consumer Prices fell to 1.8% year-on-year in September, falling below the ECB’s 2% target and the lowest since April 2021. Markets reflect a 95% probability rate cut of 25 basis points this month. .

However, the EUR/GBP cross gained ground following bullish comments from Bank of England (BoE) Governor Andrew Bailey on Thursday. BoE Governor Bailey said the outlook for the central bank to become “a bit more aggressive” in cutting interest rates as inflation developments continue to be good. The Bank of England is expected to cut its policy rate by 25 bps at its November meeting.

The Bank of England’s latest Policy Panel (DMP) survey, published on Thursday, indicated that “year-on-year UK firms’ estimated CPI inflation fell by a further 0.1% to 2.6% in the September quarter”. Expected wage growth next year was flat at 4.1% on a three-month moving average in September, while business uncertainty eased over the same period.