EUR/GBP Flat Lines Above 0.8650 As Markets Await ECB, BoE Rate Decisions

The EUR/GBP cross flat lines around 0.8665 during the early European trading hours on Wednesday. Traders turn to a wait-and-see mode ahead of key interest rate decisions from both the European Central Bank (ECB) and the Bank of England (BoE) on Thursday. 

The ECB is expected to keep its key interest rates unchanged at its upcoming policy meeting on Thursday due to high uncertainty. Nonetheless, rising inflation, driven by energy price volatility from the Iran war, has raised the expectation of a rate hike in June. 

Goldman Sachs analysts see the ECB delivering two 25 basis point (bps) rate hikes in the months ahead. The first being in June, with the next in September, to bring the deposit rate back to 2.50%. Traders will take more cues from the ECB President Christine Lagarde's press conference after the meeting for clues about the outlook for rates.

On the UK’s front, the Bank of England (BoE) is expected to hold interest rates steady at 3.75% in its upcoming decision on Thursday as policymakers buy time to assess the risks stemming from the energy crunch. 

BoE governor Andrew Bailey stated in the last meeting that, given the UK’s weak labour market and a lack of corporate pricing power, there was no immediate need to change policy. However, a UK economist at JPMorgan pointed to strong business activity readings and expansion in Gross Domestic Product (GDP) in February as underscoring the inflation risks.  “We expect the BoE to create space for a potential near-term hike, with incoming data determining whether and when it will act,” he said.