During the first American session, the EUR/GBP exchange rate hovered just above 0.8625. At the same time, the British Pound displayed remarkable strength in speculation ahead of important economic reports. On the day, EUR/GBP fell by roughly 0.25%. It fell under the 0.8650 level after failing to hold on to the rally seen on Tuesday. Market analysts note that the Pound’s firmness is largely influenced by steady labor market figures and expectations surrounding monetary policy adjustments from the Bank of England (BoE).
This is illustrated by the fact that the latest labour market data has UK unemployment at 4.7%. This strength has provided firm support for the British Pound. Elsewhere, regular pay growth in the UK has hovered just below 5% per year. This bubbling up inflationary wage environment stokes consumer demand and aids economic resiliency. These factors have reinforced confidence in the Pound, especially as traders look ahead to tomorrow’s GDP data.
The financial markets are expecting almost a 100% probability of at least a 25 basis point cut from the Bank of England. They further predict that the third cut is likely to occur before the year ends. More recently, markets have pushed down the expectations for additional cuts before November. This change is increasing pro-Pound sentiment. That’s a big action from the BoE earlier this month when they cut the interest rate 25 basis points to 4.00%. That’s the lowest it’s been since March of 2023. BoE policymakers have been at great pains to stress their dependence on economic data to inform policy direction.
Traders are preparing for Thursday’s release of second-quarter Gross Domestic Product (GDP) data. They are especially laser-focused on how these numbers will impact currency valuations. The upcoming GDP reports from both the UK and Eurozone will provide essential insights into economic performance, potentially influencing future monetary policy decisions from central banks.