EUR/GBP extends decline below 0.8450 as UK economy rebounds faster than expected


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  • EUR/GBP
    extends
    the
    downside
    near
    0.8425
    in
    Thursday’s
    early
    European
    session. 

  • The
    UK
    GDP
    grew
    0.4%
    MoM
    in
    May
    after
    stagnating
    in
    April,
    better
    than
    expected. 

  • Higher
    bets
    on
    the
    ECB
    rate
    cuts
    weigh
    on
    the
    Euro
    and
    cap
    the
    cross’s
    upside. 

The

EUR/GBP

cross
remains
on
the
defensive
around
0.8425
during
the
early
European
session
on
Thursday.
The
cross
trades
with
mild
losses
after
the
monthly
UK
Gross
Domestic
Product
(GDP)
data. 

The
UK
economy
grew
more
than
expected
in
May
after
stagnating
in
April,
with
the
GDP
expanding
at
0.4%
MoM.
This
figure
beat
market
expectations
of
0.2%
in
the
reported
period,
according
to
National
Statistics
(ONS)
on
Thursday.
The
Pound

Sterling

(GBP)
attracts
modest
sellers
in
response
to
the
stronger
UK
data.

The
uncertainty
surrounding
the
Bank
of
England’s
(BoE)
decision
to
begin
lowering
its
borrowing
costs
from
the
August
meeting
has
risen.
The
BoE
policymaker
Catherine
Mann
signals
caution
on
rate
cuts,
warning
of
a
resurgence
in
UK
inflation
and
rapid
increases
in
service
prices.
Mann
added
that
uncertainty
about
wage
behaviour
in
the
UK
is
unlikely
to
disappear
soon,
and
policy
decisions
need
to
be
robust
to
this.

Meanwhile,

BoE

policymaker
Jonathan
Haskell
said
that
he
does
not
want
to
cut
interest
rates
as
inflationary
pressures
remain
in
the
job
market
and
it
is
unclear
how
rapidly
they
will
fade.
Investors
are
now
pricing
in
nearly
60%
odds
that
the
BoE
will
cut
interest
rates
on
August
1,
the
first
time
since
2020. 

On
the
Euro
front,
the
European
Central
Bank
(ECB)
governing
council
member
Fabio
Panett
said
on
Tuesday
that
the
ECB
can
continue
to
lower
interest
rates,
adding
that
wage
growth,
a
central
driver
of
inflation,
was
“not
warranted.”
Traders
raise
their
bets
on
an

ECB

rate
cut
this
year,
which
might
cap
the
cross’s
upside
in
the
near
term.

GDP
FAQs

A
country’s
Gross
Domestic
Product
(GDP)
measures
the
rate
of
growth
of
its
economy
over
a
given
period
of
time,
usually
a
quarter.
The
most
reliable
figures
are
those
that
compare
GDP
to
the
previous
quarter
e.g
Q2
of
2023
vs
Q1
of
2023,
or
to
the
same
period
in
the
previous
year,
e.g
Q2
of
2023
vs
Q2
of
2022.
Annualized
quarterly
GDP
figures
extrapolate
the
growth
rate
of
the
quarter
as
if
it
were
constant
for
the
rest
of
the
year.
These
can
be
misleading,
however,
if
temporary
shocks
impact
growth
in
one
quarter
but
are
unlikely
to
last
all
year

such
as
happened
in
the
first
quarter
of
2020
at
the
outbreak
of
the
covid
pandemic,
when
growth
plummeted.

A
higher
GDP
result
is
generally
positive
for
a
nation’s
currency
as
it
reflects
a
growing
economy,
which
is
more
likely
to
produce
goods
and
services
that
can
be
exported,
as
well
as
attracting
higher
foreign
investment.
By
the
same
token,
when
GDP
falls
it
is
usually
negative
for
the
currency.
When
an
economy
grows
people
tend
to
spend
more,
which
leads
to
inflation.
The
country’s
central
bank
then
has
to
put
up
interest
rates
to
combat
the
inflation
with
the
side
effect
of
attracting
more
capital
inflows
from
global
investors,
thus
helping
the
local
currency
appreciate.

When
an
economy
grows
and
GDP
is
rising,
people
tend
to
spend
more
which
leads
to
inflation.
The
country’s
central
bank
then
has
to
put
up
interest
rates
to
combat
the
inflation.
Higher
interest
rates
are
negative
for
Gold
because
they
increase
the
opportunity-cost
of
holding
Gold
versus
placing
the
money
in
a
cash
deposit
account.
Therefore,
a
higher
GDP
growth
rate
is
usually
a
bearish
factor
for
Gold
price.