EUR/GBP seems vulnerable around 0.8530 despite weak UK Employment data
- EUR/GBP sees a downside below 0.8530 as the ECB is expected to begin reducing interest rates from August.
- Eurozone core CPI has consistently declined in the last eight months.
- The Pound Sterling holds strength against the Euro despite poor UK labor market data.
The EUR/GBP pair struggles to hold an auction above the immediate support of 0.8530 in the early European session on Tuesday. The cross remains under pressure as the Euro weakens amid expectations that the European Central Bank (ECB) will be second among central banks from developed nations that will pivot to rate cuts.
ECB policymakers see market expectations for the central bank starting to reduce borrowing rates from the June meeting as reasonable. The annual core Consumer Price Index (CPI) that excludes volatile food and energy prices has come down significantly to 2.9% in March. Eurozone core CPI is consistently declining from last eight months, suggesting that inflation is sustainably declining to the 2% target.
Last week, the ECB kept its Main Refinancing Operations Rate unchanged at 4.5% as expected. In a monetary policy conference, ECB President Christine Lagarde said if a fresh assessment increases policymakers' confidence that inflation is heading back to target, then it "would be appropriate" to cut interest rates, Reuters reported.
Meanwhile, the Pound Sterling has been underpinned against the Euro due to strong speculation that the ECB will sooner pivot to rate cuts but is performing weak against the US Dollar. The Pound Sterling faces pressure as weak labor market data for the quarter through February has exhibited a poor economic outlook.
The United Kingdom Office for National Statistics (ONS) reported that the Unemployment Rate climbed sharply to 4.2% from expectations of 4.0% and the prior reading of 3.9%. UK employers laid off 156K workers in February, higher from 89K in January.
Going forward, investors will focus on the UK Consumer Price Index (CPI) data for March, which will be published on Wednesday. The inflation data will significantly influence market expectations for Bank of England (BoE) rate cuts, which are currently anticipated from the August meeting.