EUR/GBP REBOUNDS FROM 0.8530 DESPITE HOPES THAT BOE TO REDUCE RATE CUTS LATER THAN ECB

• EUR/GBP recovers from 0.8530 as investors shift focus to Thursday’s BoE policy decision.
• The ECB is expected to announce its first rate cut in June, while the BoE is expected to make a similar decision in August.
• The UK's inflation data, scheduled for Wednesday, will guide the Pound Sterling.

The EUR/GBP pair bounces back strongly from 0.8530 in the European session on Friday. The cross rebounds even though market participants anticipate that the Bank of England (BoE) will start reducing interest rates after the European Central Bank (ECB).

Market expectations for the ECB reducing interest rates are leaned towards the June policy meeting. Several ECB policymakers are also favoring a rate cut decision in June as the inflationary pressures in the Eurozone economy have come down significantly. The core inflation decelerated to 3.1% in February, and there are no signs of a significant improvement in the economic outlook, which will keep price pressures limited.

On Thursday, ECB Governing Council member Klaas Knot said he believes the central bank will start cutting interest rates in June. Separately, ECB Governing Council member Yannis Stournaras backed the case for an early rate cut. Stournaras added that he doesn't buy the argument that the ECB cannot cut rates before the Fed and that four rate cuts in 2024 seem reasonable.

Meanwhile, the Pound Sterling has come slightly under pressure as investors shift focus to the BoE’s interest rate decision, which will be announced on Thursday. The BoE is expected to keep interest rates unchanged at 5.25%. But before that, the United Kingdom’s inflation data for February will be keenly watched.

The inflation data will influence market expectations for BoE rate cuts, which are currently leaning toward August for the first rate cut.