Euro nears three-week high against British Pound on UK fiscal concerns, BoE outlook

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EUR/GBP holds firm on Tuesday, extending its recovery from the more than one-year low touched earlier this month as diverging monetary policy expectations between the European Central Bank (ECB) and the Bank of England (BoE), along with UK fiscal concerns, weigh on the British Pound (GBP).

EUR/GBP builds on its recovery from a one-year low.
UK fiscal concerns and monetary policy divergence between the ECB and BoE keep the British Pound on the defensive.
Traders await the BoE's interest-rate decision due on Thursday.

Analysts at OCBC note that sentiment toward the British Pound has turned more cautious, with “some of the recent optimism” now having “faded” as earlier hopes for “greater political stability in the UK are increasingly giving way to concerns over fiscal constraints.” They argue that “this reassessment has further to run, particularly as higher energy prices add to fiscal pressures,” leaving the Pound on a weaker footing. In this context, OCBC reiterates that it “continues to expect EURGBP to recover towards 0.87 over the coming months, in line with our broader view that GBP remains range-bound.”

BoE interest-rate decision looms

The central bank can afford to maintain a steady approach as the inflationary impact of higher Oil prices has so far been contained in the UK. Headline inflation fell to a 15-month low of 2.6% in June, while signs of weakness in the labour market provide another reason to keep borrowing costs unchanged.

Inflation risks have not disappeared, particularly with energy prices trading above their pre-war levels. However, most economists surveyed by Reuters expect the BoE to keep interest rates unchanged through the end of the year.

In contrast, the ECB is expected to consider another rate hike as early as September. Against this backdrop, the Euro (EUR) remains favoured against the British Pound.

ECB left interest rates unchanged last week and reiterated that future decisions would depend on incoming economic data, the inflation outlook and the risks surrounding it. Traders now await the preliminary Eurozone Harmonized Index of Consumer Prices (HICP) data for July, due on Friday.

Pound Sterling Price Today

The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the Australian Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.05%	0.10%	0.11%	-0.13%	0.36%	0.07%	0.04%
EUR	-0.05%		0.05%	0.07%	-0.20%	0.31%	0.02%	-0.01%
GBP	-0.10%	-0.05%		0.02%	-0.21%	0.27%	-0.01%	-0.03%
JPY	-0.11%	-0.07%	-0.02%		-0.25%	0.24%	-0.05%	-0.06%
CAD	0.13%	0.20%	0.21%	0.25%		0.50%	0.19%	0.19%
AUD	-0.36%	-0.31%	-0.27%	-0.24%	-0.50%		-0.27%	-0.32%
NZD	-0.07%	-0.02%	0.01%	0.05%	-0.19%	0.27%		-0.01%
CHF	-0.04%	0.00%	0.03%	0.06%	-0.19%	0.32%	0.00%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).

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