EUR/GBP drops to around 0.8520 ahead of Eurozone and German GDP data

• EUR/GBP faces downward pressure ahead of the release of Eurozone and German GDP data.
• BoE officials emphasized prolonging tight monetary policy to tackle inflation.
• The ECB is expected to cut interest rates by 50 basis points by June and by 140 basis points by December 2024.

The crossing EUR/GBP continues its bearish trend for the second consecutive session, awaiting the next interest rate decision from the Bank of England (BoE), scheduled for Thursday. At the time of writing, the pair is trading around 0.8520, losing 0.05% on the day. Investors are closely monitoring these developments in anticipation of the impact the BoE decision may have on the EUR/GBP pair.

Market expectations are that the Bank of England (BoE) will likely maintain its current interest rate of 5.25%. BoE members have stressed the importance of maintaining a prolonged period of tight monetary policy to address inflation problems, which has contributed to the strength of the British Pound (GBP). This, in turn, acts as a headwind for EUR/GBP.

However, there has been an adjustment in market participants' expectations for rate cuts, with the first cut now fully discounted for June. Initially forecast for May, this change in expectations is noteworthy and is likely to influence trading dynamics for EUR/GBP following the upcoming BoE decision.

For its part, The Euro (EUR) is suffering downward pressure after the decision of the European Central Bank (BCE) to maintain the Main Refinancing Operations Rate at 4.50% and the Deposit Facility Rate at 4%. Despite this decision, expectation is growing in the market for the ECB's rate cuts, with expectations of a reduction of 50 basis points (bp) by June and a more substantial cut of 140 bp by December 2024.

In a recent statement on Monday, ECB Vice President Luis de Guindos indicated that The ECB would consider interest rate cuts once there is confidence that inflation is aligned with the 2.0% target of the central bank. He highlighted the positive developments in inflation and suggested that these favorable trends would eventually influence the ECB's monetary policy.

Looking ahead, the publication of the quarterly figures of the Gross Domestic Product (GDP) of the euro zone and Germany is scheduled for Tuesday, which will add another level of importance to the evolution of the economic outlook.