The EUR/GBP pair is trading lower, around 0.8815, in early European session trading on Friday. The British Pound is gaining on the Euro, even as expectations rise for a Bank of England (BoE) interest rate cut at its December monetary policy meeting. Market participants are anticipating the release of flash Eurozone HCOB Purchasing Managers Index (PMI) data later today, along with flash UK S&P Global PMI and Retail Sales reports.
Increased speculation regarding a BoE rate cut next month and concerns over UK fiscal policy could put pressure on the Pound, thereby supporting the EUR/GBP cross. Traders have significantly ramped up their expectations for a December rate cut, with interest rate swaps indicating an 87% probability of a fourth and final BoE rate reduction for the year, up from 76% last week, according to Reuters.
Furthermore, a cloud of uncertainty and pessimism surrounding the UK’s upcoming Autumn Budget could dampen sentiment towards the Pound against the Euro. The UK government’s Autumn Budget, set for November 26, is likely to be a significant factor in the BoE’s decision-making process, as it seeks clearer understanding of its potential economic ramifications.
Traders will also be closely monitoring the UK Retail Sales report for further direction. Should the data reveal hotter-than-expected inflation in the UK economy, it could provide a near-term boost to the Pound against the Euro. UK Retail Sales are forecast to remain flat at 0% in October, following a 0.5% increase in the prior reading.
Conversely, cautious statements from the European Central Bank (ECB) could provide underlying support for the Euro. The ECB is widely expected to maintain its key interest rates unchanged until the end of 2026, given inflation near its 2% target, stable economic growth, and historically low unemployment. ECB Governing Council member Gabriel Makhlouf indicated on Thursday that the current monetary policy is appropriate, and adjustments are unlikely unless there’s a significant change in conditions.
