- EUR/GBP edges lower to around 0.8490 in Tuesday’s early European session.
- ECB’s Rehn indicated the central bank may consider cutting interest rates below the neutral level, potentially stimulating economic activity.
- UK Retail Sales experienced a rise in March, yet market participants continue to anticipate a potential BoE rate cut in May.
The EUR/GBP cross is exhibiting a downward trajectory, trading near the 0.8490 level during the early hours of Tuesday’s European trading session. The Euro (EUR) is facing headwinds against the Pound Sterling (GBP) following recent dovish signals emanating from the European Central Bank (ECB). Market participants are currently awaiting a speech from Bank of England (BoE) official Dave Ramsden later in the day, which could provide further insights into the central bank’s monetary policy outlook.
Earlier in the month, the ECB implemented its seventh interest rate cut within a year, simultaneously issuing a cautionary note regarding the potential adverse effects of US tariffs on economic expansion within the Eurozone. This action has bolstered the argument for further monetary easing in the coming months, placing downward pressure on the Euro. ECB policymaker Olli Rehn stated on Monday that the central bank is prepared to consider cutting interest rates below the neutral level – the theoretical rate that neither stimulates nor restricts economic growth. This suggests a willingness to adopt a more accommodative stance to combat potential economic slowdown. His comments underscore the ECB’s commitment to achieving its inflation target, even if it requires unconventional measures.
Market sentiment, as reflected in LSEG data, currently assigns a roughly 75% probability to a rate cut in June, a notable increase from the approximately 60% probability priced in before the ECB’s recent policy decision. However, analysts caution that with over a month remaining until the June meeting, and given the heightened uncertainty surrounding economic policy in the wake of Donald Trump’s April 2 announcement, these expectations remain subject to change. Investors are closely monitoring incoming economic data and geopolitical developments for further clues regarding the ECB’s future course of action. The central bank’s forward guidance will be crucial in shaping market expectations and minimizing potential volatility.
On the other side of the currency pair, the UK’s economic landscape saw a positive development with UK Retail Sales rising in March. However, this positive data point has not entirely dispelled expectations of a potential interest rate cut by the Bank of England (BoE) in May, as broader economic uncertainties, particularly those related to international trade and tariffs, continue to weigh on sentiment. Specifically, UK Retail Sales increased by 0.4% month-over-month in March, surpassing the previous month’s increase of 0.7%. This figure also exceeded market forecasts, which had anticipated a decline of 0.4%. Despite this positive surprise, the BoE remains cautious, carefully assessing the overall economic outlook before making any adjustments to its monetary policy.
