- EUR/GBP strengthens to near 0.8660 in Monday’s early European session.
- The French PM will hold a confidence vote on September 8, bringing back fears of recession.
- Analysts expect the BoE will not cut interest rates for the remainder of the year.
The EUR/GBP cross gains momentum to around 0.8660 during the early European trading hours on Monday. The hotter-than-expected preliminary reading of Germany’s Consumer Price Index (CPI) report provides some support to the Euro (EUR). The European Central Bank (ECB) President Christine Lagarde is scheduled to speak later on Monday.
The recent German inflation data showed that the country’s CPI rose 2.2% YoY in August, compared to 2.0% in July, exceeding the estimation of 2.1%. The HICP climbed 2.1% YoY in August versus 1.8% prior, above the consensus of 2.0%. The rise in inflation has led to uncertainty regarding future ECB actions and prompted investors to reassess the likelihood of ECB rate cuts.
Nonetheless, France faces a new political crisis as Prime Minister François Bayrou is expected to lose a confidence vote. Opinion polls from Reuters showed that most French people now want new national elections, pointing to deepening dissatisfaction with politics and a risk of lasting uncertainty. This, in turn, might exert some selling pressure on the shared currency. Traders will take more cues from the flash Harmonized Index of Consumer Prices (HICP) data from the Eurozone, which is due later on Tuesday.
On the other hand, traders reduce their bets on the Bank of England (BoE) interest rate cut after a series of hawkish economic data, which might support the GBP. BoE Monetary Policy Committee (MPC) member Catherine Mann last week also argued in favor of holding interest rates at their current levels for a longer period, with inflationary pressures turning out to be persistent.
