Home Forex News EUR/GBP poised for potential rally amid policy divergence

EUR/GBP poised for potential rally amid policy divergence

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Investing.com — On Monday, the EUR/GBP pair showed signs that it might rise from its current levels after recent movements in the foreign exchange market. The pair, which had dipped below 0.8500, lacked strong bearish momentum, potentially influenced by thinner liquidity. Despite the volatile inflation and wage data, the market seems hesitant to push the pair lower, considering the increasingly divided opinions among the Bank of England’s Monetary Policy Committee (MPC) members.

The divergence in monetary policy between the European Central Bank (ECB) and the Bank of England is identified as the primary factor that could drive a rally for EUR/GBP. Observers note that the policy landscape could shift in favor of the euro in the upcoming months. Speculation suggests that economic data expected next month may bolster the case for a rate cut by the Bank of England in August, which could, in turn, support a EUR/GBP rally.

Despite the ECB’s dovish comments, which typically would weigh on the euro, the currency has been somewhat insulated thanks to a softening U.S. dollar. This has affected the EUR/GBP cross specifically, as the pound tends to be more sensitive to changes in risk sentiment due to its higher beta.

In the UK, the political scene is relatively subdued with regards to its impact on the currency markets. Labour Party leader Keir Starmer, who is leading in the polls, began his campaign with a speech yesterday. However, this event did not resonate significantly with the market, and currently, there is no noticeable risk premium on EUR/GBP related to UK politics.

The upcoming week’s calendar for the UK does not feature major economic events that are likely to influence the currency pair significantly. Market participants will be watching closely for any shifts in policy or economic indicators that could affect the trajectory of EUR/GBP in the near future.

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