The EUR/GBP pair has declined for the third consecutive session, hovering around 0.8570 during Thursday’s European trading. This downtrend is attributed to market expectations regarding the Bank of England’s (BoE) stance on interest rates. According to a Reuters poll, the consensus suggests that the BoE may delay rate cuts until the next quarter, bolstering support for the Pound Sterling (GBP).

Bank of England Chief Economist Huw Pill’s recent comments reinforced this sentiment, indicating that rate cuts are not imminent despite nearing conditions that would warrant such actions. The UK’s 10-year Gilt yields have risen to nearly five-month highs at 4.31%, driven by hawkish expectations due to increased bond supply and positive domestic economic indicators like a robust Purchasing Managers Index (PMI).

In contrast, the European Central Bank (ECB) maintains a dovish stance, with plans to lower interest rates. ECB President Christine Lagarde’s remarks hinted at a potential rate cut in June but emphasized the central bank’s openness to further measures. This ECB stance pressures the Euro (EUR) and adds headwinds to the EUR/GBP cross.

ECB board member Isabel Schnabel’s cautionary note about Eurozone inflation challenges, especially regarding productivity erosion and high service costs, adds to the bearish sentiment on the Euro. Schnabel highlighted consensus concerns about the difficulty in reaching the 2% inflation target.

Amidst this backdrop, trade cautiously, considering potential GBP strength against the EUR in the near term due to BoE expectations, while monitoring ECB actions for Euro weakness.

Trade Idea:

Consider short positions on EUR/GBP, targeting support levels near 0.8550, with a stop-loss above 0.8600.