- EUR/GBP gains ground ahead of the speeches from ECB’s Philip Lane and Piero Cipollone on Friday.
- The Euro may face challenges as the ECB is widely expected to deliver another rate cut in October.
- The Pound Sterling receives support as the BoE is expected to reduce rates more gradually compared to other central banks.
EUR/GBP retraces its recent losses from the previous session, trading around 0.8340 during Friday’s Asian hours. However, further gains may be limited, as the Euro’s performance against major currencies remains weak amid increasing speculation that the European Central Bank (ECB) could lower the Deposit Facility Rate for the second consecutive time next month. This would mark the ECB's third dovish move this year.
ECB Chief Economist Philip Lane will likely deliver the opening remarks at a conference focused on Fiscal Policy, Financial Sector Policy, and Economic Growth in Dublin, Ireland. Meanwhile, ECB board member Piero Cipollone will give a keynote speech at the "Economics of Payments XIII" conference, organized by the Austrian Central Bank.
According to a Reuters report, economists at HSBC anticipate that the ECB will reduce interest rates by 25 basis points at each meeting from October through next April. Meanwhile, Societe Generale economist Anatoli Annenkov suggested there is a case for front-loading the rate cuts, indicating a preference for more aggressive action earlier in the easing cycle.
On the GBP side, expectations that the Bank of England's (BoE) rate-cutting cycle will likely proceed more slowly than the ECB’s should continue to support the British Pound (GBP) and exert downward pressure on the EUR/GBP cross.
The BoE allotted 37.059 billion pounds ($49.52 billion) in seven-day funds during its weekly short-term repo on Thursday, down from last week’s record of 44.523 billion pounds. Repos, or repurchase agreements, allow banks to temporarily exchange government bonds for central bank cash, helping to maintain market interest rates in line with the BoE’s policy rate, according to Reuters.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD extends losses toward 1.1100 on increased dovish ECB bets
EUR/USD accelerates decline toward 1.1100 in European trading on Friday. Softer French and Spanish inflation data ramped up Oct ECB rate cut bets, weighing on the Euro. However, the downside could be cushioned by a wobbly US Dollar, as US PCE inflation looms.
USD/JPY slides 1% toward 143.00 as Ishiba wins LDP leadership race
USD/JPY is seeing a fresh sell-off toward 143.00 in the European session on Friday. The pair loses over 300 pips, as the Japanese Yen rebounds on Shigeru Ishiba's win in the LDP leadership run-off. Sanae Takaichi, who favored keeping interest rates lower, was expected to win the race.
Gold price pulls back from record high ahead of US PCE Price Index, bullish bias remains
Gold price attracts some sellers on the last day of the week and retreats further from the all-time peak, around the $2,685-2,686 region touched on Thursday. The downtick is sponsored by the emergence of some US Dollar buying, which tends to undermine demand for the commodity.
US core PCE set to show continued disinflation trend, reinforcing Federal Reserve easing cycle
The core Personal Consumption Expenditures Price Index is seen rising 0.2% MoM and 2.7% YoY in August. Markets have already priced in near 50 bps of easing in the next two Federal Reserve meetings. A firm PCE result is unlikely to move the Fed’s stance on policy.
RBA widely expected to keep key interest rate unchanged amid persisting price pressures
The Reserve Bank of Australia is likely to continue bucking the trend adopted by major central banks of the dovish policy pivot, opting to maintain the policy for the seventh consecutive meeting on Tuesday.
Five best Forex brokers in 2024
VERIFIED Choosing the best Forex broker in 2024 requires careful consideration of certain essential factors. With the wide array of options available, it is crucial to find a broker that aligns with your trading style, experience level, and financial goals.