EUR/GBP stays above 0.8450 due to heightened expectations of BoE’s rate cut in August

• EUR/GBP gains ground as the BoE dovish pause increased expectations for a rate cut in August.
• The Euro could struggle due to uncertainties surrounding the outcome of a snap election in France.
• The headline German IFO Business Climate Index fell to 88.6 in June from 89.3 in May.

EUR/GBP extends its gains for the third successive session, trading around 0.8460 during the European session on Monday. The British Pound (GBP) remains under pressure following the Bank of England's (BoE) dovish pause last week, which increased expectations for an interest rate cut at the August monetary policy meeting.

Thursday’s BoE statement and minutes indicated that officials are nearing a decision to cut interest rates, as noted by ING’s FX Strategist Francesco Pesole. Pesole mentioned that "three rate cuts in 2024 starting from August remain ING’s base case," which is more dovish compared to the two cuts currently priced in by the market.

Additionally, the flash UK PMIs released on Friday showed that private sector business activity in June expanded at its slowest rate since last November. This has exerted further pressure on the Pound Sterling, bolstering the EUR/GBP cross.

The EUR/GBP cross may limit its upside as the Euro could struggle due to uncertainties surrounding the outcome of a snap election in France, fueling concerns that a new government might worsen the fiscal situation in the Eurozone's second-largest economy.

On Monday, the headline German IFO Business Climate Index fell to 88.6 in June from 89.3 in May, coming in below the market expectation of 89.7. The Current Assessment Index remained unchanged at 88.3, while the Expectations Index dropped to 89.0 from 90.4. This weaker German data could put pressure on the Euro, further limiting the upside of the EUR/GBP cross.