The EUR/GBP pair recorded modest losses near 0.8740 during the early European session on Wednesday. Tight comments from Bank of England (BoE) policymakers are providing some support to the pound sterling (GBP) against the euro (EUR). Traders will watch Bank of England Governor Bailey’s speech later on Wednesday. On Friday, the UK’s monthly GDP report will be released.
Bank of England Deputy Governor Claire Lombardelli said on Tuesday she was concerned about upside risks to inflation in the UK, and the central bank should move more slowly to lower borrowing costs as it approaches the end of its interest rate cutting cycle. Lombardelli’s comments lift the pound and create headwinds for the pair in the near term.
However, growing expectations that the British central bank will cut interest rates by 25 basis points to 3.75% at its December monetary policy meeting next week could undermine sterling. Financial markets currently expect about an 88% chance of a quarter-point cut at the Bank of England’s next meeting after signs from economic data that inflation pressure is easing, according to a Reuters poll.
Meanwhile, growing bets that the European Central Bank is done cutting interest rates could support the euro. ECB President Christine Lagarde noted in her recent comments that the central bank is not pre-committing to a specific rate path and will maintain a data-driven, meeting-by-meeting approach to future decisions. She added that the euro zone economy is in a “good position”, with inflation approaching the 2% target.
Frequently asked questions about the pound sterling
The British Pound (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most popular foreign exchange (FX) trading unit in the world, accounting for 12% of all transactions, averaging $630 billion per day, according to data for 2022. The main trading pairs are GBP/USD, also known as “Cable”, which accounts for 11% of FX, GBP/JPY, or “Dragon” as traders know it (3%), and EUR/GBP (2%). The pound sterling is issued by the Bank of England (BoE).
The single most important factor affecting the value of the pound sterling is the monetary policy decided by the Bank of England. The Bank of England bases its decisions on whether it has achieved its primary objective of “price stability” – a stable inflation rate of around 2%. The primary tool for achieving this is adjusting interest rates. When inflation is too high, the Bank of England will try to rein it in by raising interest rates, making it more expensive for individuals and businesses to obtain credit. This is generally positive for the pound, as higher interest rates make the UK a more attractive place for global investors to put their money. When inflation falls to a very low level, it is a sign that economic growth is slowing. In this scenario, the Bank of England would consider lowering interest rates to reduce the cost of credit so that companies borrow more to invest in growth-generating projects.
Data releases measure the health of the economy and can affect the value of the British pound. Indicators such as GDP, manufacturing PMIs, services and employment can all influence the direction of the pound. A strong economy is good for the pound. Not only does it attract more foreign investment, but it may encourage the Bank of England to raise interest rates, which will directly strengthen sterling. Otherwise, if economic data is weak, the British pound is likely to fall.
Another important data release for the British Pound is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a certain period. If a country produces highly sought-after exports, its currency will take full advantage of the additional demand generated by foreign buyers seeking to purchase these goods. Therefore, a positive net trade balance strengthens the currency and vice versa for a negative balance.


