- EUR/GBP may weaken as the BoE cautioned against expectations of rate cuts and raised its inflation forecast.
- GfK Consumer Confidence rose by one point to -19 in March, marking its second consecutive monthly increase from -20 in February.
- ECB President Christine Lagarde highlighted economic risks from potential US tariffs.
EUR/GBP gains ground on Friday after losses in the previous session, hovering around 0.8380 during early European trading. However, the currency pair could face headwinds as the Pound Sterling (GBP) strengthens following the Bank of England's (BoE) cautious stance on rate cuts and its revised inflation peak forecast for the year.
On Thursday, the BoE maintained interest rates at 4.5% as expected, with eight out of nine Monetary Policy Committee (MPC) members voting to keep borrowing costs unchanged. One member supported a 25 basis-point (bps) rate cut, fewer than the two anticipated by market participants.
In the UK, GfK Consumer Confidence inched up by one point to -19 in March 2025, marking a second consecutive monthly increase from -22 in January and -20 in February. The figure surpassed market expectations of -21 but remained in negative territory, highlighting ongoing consumer caution.
Meanwhile, the Euro (EUR) remains under pressure after European Central Bank (ECB) President Christine Lagarde warned of economic risks stemming from potential US tariffs. Speaking before the European Parliament’s Committee on Economic and Monetary Affairs, Lagarde noted that a 25% tariff on European imports—threatened by US President Donald Trump—could reduce Eurozone growth by approximately 0.3% in its first year.
Additionally, ECB policymakers have signaled the possibility of rate cuts in 2025, citing increasing risks from global trade tensions. Investors now turn their attention to upcoming Eurozone data, including January’s current account balance and March’s consumer confidence figures due on Friday.
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.
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