- ECB’s Isabel Schnabel said that Quantitative Easing may have weakened the transmission of monetary policy during the recent tightening cycle.
- The annual inflation rate moderated to 2.3% in April, tempering expectations of a rate cut in June among investors.
- The Pound Sterling gains as the BoE expects to maintain higher rates for longer ahead of the general election in the UK.
EUR/GBP rebounds from the nine-month low of 0.8496 recorded on Monday, trading around 0.8520 during the European session on Tuesday. European Central Bank (ECB) Executive Board member Isabel Schnabel said at the 2024 BOJ-IMES Conference on Tuesday that Quantitative Easing (QE) may have weakened the transmission of monetary policy during the recent tightening cycle. In a bank-based economy, targeted longer-term refinancing operations can provide substantial support with a smaller footprint.
Investors are likely awaiting the inflation surveys due later in the day for cues on the ECB’s monetary policy outlook. Additionally, German Consumer Price Index (CPI) inflation figures are scheduled for release on Wednesday, with markets expecting Germany’s economy to grow by only 0.2% month-over-month (MoM) in May, compared to the previous 0.5%.
In the United Kingdom (UK), the annual inflation rate moderated to 2.3% in April, edging closer to the Bank of England's (BoE) target of 2%. This moderation has tempered expectations of a rate cut in June among investors, which could support the Pound Sterling (GBP) and undermine the EUR/GBP cross.
The Pound Sterling (GBP) gains momentum as traders anticipate that the Bank of England (BoE) will maintain its borrowing costs for longer to cool inflation. Moreover, UK Prime Minister Rishi Sunak called for general elections on July 4. Bloomberg reported on Friday that Citigroup strategist Jamie Searle said that the UK election in July will "further reduce the chance of a near-term BoE cut," adding that it lowers the risk of a later election interfering with the BoE cycle and allows the focus to remain on data-dependency.
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