10 Dec 2024

• EUR/GBP posts modest gains near 0.8280 in Tuesday’s early Asian session. 
• The BoE keeps a cautious stance on its easing path. 
• ECB is widely expected to cut its key interest rate by 25 bps to 3.00% at its December meeting on Thursday.
• The EUR/GBP exchange rate is currently showing modest gains, trading around 0.8280 during the early hours of the European session on Tuesday. However, the potential for further appreciation of the Euro against the Pound Sterling may be limited. This is largely due to growing expectations that the Bank of England (BoE) will take a cautious and gradual approach to reducing interest rates, which is providing support for the GBP in its exchange rate against the EUR.
  
  Swati Dhingra, a member of the BoE's monetary policy committee, has raised concerns about the adverse effects of high interest rates on the UK economy. She pointed out that elevated rates are constraining consumer spending and hindering business investment, which are critical components of economic growth. Dhingra has voiced her support for a "gradual" approach to interest rate cuts, suggesting that the long-term neutral interest rate for the UK economy is likely to settle between 2.5% and 3.5%. This perspective indicates a more measured approach to monetary policy, which could help stabilize the economy while still allowing for some easing of financial conditions.
  
  Market participants are increasingly anticipating that the BoE will implement interest rate cuts at a slower pace compared to other major central banks. This expectation could provide a boost to the GBP, as it suggests that the UK central bank is prioritizing economic stability over aggressive monetary easing. Currently, the market expects the BoE to keep the interest rate steady at 4.75% during its upcoming meeting in December, with projections indicating a total reduction of 75 basis points over the next year. This gradual approach may help maintain investor confidence in the GBP.
  
  On the other hand, the Eurozone is facing its own set of challenges. Market expectations suggest that the European Central Bank (ECB) is likely to lower its key deposit rate by a quarter percentage point to 3% in its upcoming meeting on Thursday. Furthermore, investors are forecasting an additional five rate cuts of 25 basis points each throughout the next year, which would bring the deposit rate down to 1.75%. This anticipated easing of monetary policy reflects concerns about economic growth and inflation within the Eurozone.
  
  The upcoming press conference by ECB President Christine Lagarde will be a focal point for investors, as it is expected to provide insights into the ECB's revised macroeconomic forecasts. Analysts anticipate that the ECB will lower its projections for inflation and real GDP growth, which could lead to a downward adjustment in easing expectations. Such developments may exert additional pressure on the Euro, potentially limiting its strength against the GBP