Euro outruns sterling with BOE on tenterhooks
2024-04-23
Summary:
The euro stayed flat after rising against the pound last week. UK and EU banks signaled their readiness to act amid easing price pressures.
The euro was flat on Tuesday after strengthening sharply against sterling at the end of last week. The central banks in the UK and the EU both signalled they are ready to act in light of easing price pressures.
ECB officials are sticking to plans to cut interest rates multiple times this year, even as higher US inflation delays the Fed’s pivot to looser policy and tensions in the Middle East keep oil prices high.
Christine Lagarde has strongly hinted that the central bank is likely to begin reducing its deposit rate from a record high level in June but has been careful to leave open its options for the path beyond.
Bundesbank president Joachim Nagel said the chance of a June cut is increasing, while Bank of France Governor François Villeroy de Galhau also voiced support for the move in order to revive the economy.
The BOE has found itself caught in the middle of a trans-Atlantic divide over inflation progress. City of London economists and Andrew Bailey say the UK’s outlook seems more like that of the eurozone.
However, the market’s expectations for BOE easing now looks more like those for the Fed than the ECB as UK wage and inflation data came in slightly higher than expected in March.
EURGBP firmly broke above a tight trading range and 200 SMA, indicating a strong bullish bias. The pair could confront the resistance at 0.8700 hit in December if it builds on the earlier gains.
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