The EUR/GBP cross has seen a decline around 0.8595 in the early European trading session on Friday. This downward movement can be attributed to the positive growth in the UK Gross Domestic Product (GDP) for Q1. The UK economy officially moved out of recession as the GDP expanded by 0.6% quarter-on-quarter in the first three months of the year. This growth surpasses market expectations of a 0.4% expansion and indicates a return to growth after a slight recession in the second half of 2023.
Bank of England’s Monetary Policy
The Bank of England (BoE) chose to keep its borrowing costs unchanged at 5.25% for the sixth consecutive meeting, hinting at a potential rate cut in the near future. BoE Governor Andrew Bailey mentioned during a press conference that a rate cut next month is a possibility, pending further data on inflation, economic activity, and labor market conditions. Chief Economist Huw Pill expressed confidence in initiating an easing cycle over the next few meetings, but emphasized the need for additional data before taking any decision.
ECB’s Stance on Interest Rates
European Central Bank (ECB) Vice President Luis de Guindos stated that the ECB will not make any commitments beyond its scheduled rate cut in June. Guindos emphasized the transparency of the June decision while leaving the future uncertain. On the other hand, ECB Council member Robert Holzmann warned that fluctuations in oil prices could impede the commencement of an interest rate reversal starting in June.
The positive growth in the UK GDP for Q1 has had a significant impact on the EUR/GBP exchange rate, resulting in a downward trend for the EUR/GBP cross. The BoE’s stance on monetary policy and the ECB’s cautious approach towards interest rates add further complexity to the currency pair dynamics. Traders and investors will closely monitor future economic data releases and central bank announcements to gauge the direction of the EUR/GBP exchange rate in the coming weeks.