The EUR/GBP pair moved lower in early European trading on Wednesday, falling to around 0.8635 and ending a four-day winning streak. Traders are holding back from making strong moves as they wait for key interest rate decisions from the European Central Bank and the Bank of England, both scheduled for Thursday.
The ECB is widely expected to leave its deposit rate unchanged at 2.0%. Market participants will focus more on the tone of the central bank’s communication, especially during the press conference. Any hawkish signals from policymakers could offer support to the Euro in the short term.
Market pricing, however, suggests that investors are still leaning toward tighter policy ahead. Interest rate futures indicate a fully priced-in rate hike by July, along with roughly a 55% chance of another increase before the end of the year. That said, economists surveyed by Reuters between March 9 and 13 continue to expect rates to remain steady for now.
In the UK, the Bank of England is also expected to keep its benchmark rate unchanged at 3.75% at its March meeting. Analysts believe the path ahead will largely depend on how energy prices impact inflation and consumer expectations.
Recent forecasts from Bank of America suggest a shift in expectations, with two rate cuts now projected for June and September—later than earlier estimates of March and June.
Attention will also turn to upcoming UK labor market data. The ILO unemployment rate is expected to edge up to 5.3% in January from 5.2% in December. Any signs of resilience in employment could provide near-term support to the Pound against the Euro.
