- EUR/GBP inches lower amid rising odds of the ECB reducing rates in September.
- Eurozone Producer Price Index increased by 0.8% MoM in July, the largest increase since December 2022.
- The British Pound strengthens as expectations grow that the BoE will remain more hawkish compared to the ECB.
EUR/GBP offers its recent gains from the previous session, trading around 0.8420 during Thursday’s Asian hours. Traders await Eurozone Retail Sales data scheduled to be released later in the day.
The downside of the EUR/GBP cross could be attributed to rising speculation that the European Central Bank (ECB) will cut interest rates in September. The ECB’s rate cut would mark the second interest rate cut by the ECB since it began shifting toward policy normalization in June.
In the Euro Area, the Producer Price Index (PPI) rose by 0.8% month-over-month in July, the largest increase since December 2022. This follows an upwardly revised 0.6% rise in June and significantly exceeds market forecasts of 0.3%.
However, the Eurozone Services PMI fell to 52.9 in August, from 53.3 in the previous month. Meanwhile, the Composite PMI decreased to 51.0, missing expectations and falling below the previous reading of 51.2.
The British Pound (GBP) advances further by rising expectations that the Bank of England's (BoE) rate-cutting cycle is more likely to be slower than the European Central Bank. The bets were lifted by Tuesday’s BRC Like-for-Like Retail Sales, which increased by 0.8% year-on-year in August, up from a 0.3% rise in July, marking the fastest growth in five months.
Meanwhile, there was positive sentiment from the UK macroeconomic front, as a Purchasing Managers Index (PMI) survey showed that business activity in August accelerated at its fastest pace since April.
On Wednesday, the S&P Global UK Composite PMI increased to 53.8 in August, up from 53.4 in the previous month and revised higher from the preliminary estimate of 53.4. The Services PMI rose to 53.7 in August, compared to 53.3 in the prior month. The data showed on Monday that the Manufacturing PMI held steady at 52.5 for August, consistent with preliminary estimates.
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 recovers toward 1.0400 as USD rally loses steam
EUR/USD recovers from daily lows toward 1.0400 in the American session on Tuesday. Following the earlier rally, the USD struggles to preserve its strength as the bullish opening in Wall Street's main indexes point to an improving risk mood.
GBP/USD stays below 1.2300 after UK employment data
GBP/USD rebounds from session lows but remains below 1.2300 in the second half of the day on Tuesday. The US Dollar clings to modest gains but finds it difficult to gather further bullish momentum as the impact of Trump's tariff threats fade.
Gold climbs to fresh multi-month high above $2,730
Gold gathers bullish momentum and trades at its highest level since early November above $2,730 on Tuesday. The benchmark 10-year US Treasury bond yield is down more than 1% below 4.6% following US President Trump's tariff threats, helping XAU/USD push higher.
Bitcoin fails to sustain the $109K mark after Trump’s inauguration
Bitcoin’s price steadies above the $102,000 mark on Tuesday after reaching a new all-time high of $109,588 the previous day. Santiment’s data shows that BTC prices quickly corrected, as social media showed major greed and FOMO among the traders in Bitcoin after President Donald Trump’s inauguration.
Prepare for huge US trade changes as Trump goes America first
You can be sure that big changes are coming as far as US trade is concerned, even if we didn't get any new tariffs on President Trump's first day in office. A comprehensive investigation into US trade relationships was initiated via a memorandum. China, Canada, and Mexico are clearly in the immediate firing line.
Trusted Broker Reviews for Smarter Trading
VERIFIED Discover in-depth reviews of reliable brokers. Compare features like spreads, leverage, and platforms. Find the perfect fit for your trading style, from CFDs to Forex pairs like EUR/USD and Gold.