EUR/GBP consolidates below 0.8600, upside remains favored on firm BoE rate cut bets

• EUR/GBP trades sideways below 0.8600 as investors reassess BoE’s rate cut expectations.
• BoE Mann warned that investors are expecting too many rate cuts.
• ECB Muller said the central bank is at a point where it can start reducing interest rates.

The EUR/GBP pair is struck in a tight range around 0.8580 after a slight correction from the crucial resistance of 0.8600. The cross is expected to move high as the United Kingdom’s softer-than-expected inflation data for February has revamped market expectations for the Bank of England (BoE) reducing interest rates from the June meeting.

Prior to February’s inflation data, investors were anticipating that the BoE would start cutting key borrowing rates from August. Meanwhile, the BoE’s slight dovish guidance on interest rates has also reinforced expectations for rate cuts in June. The BoE said in its monetary policy statement that the market’s view of two or three rate cuts this year is not ‘unreasonable.’ The central bank also said that inflation is moving in the right direction.

Last week, BoE Governor Andrew Bailey said in an interview with the Financial Times that rate cuts are “in play” this year. In addition, BoE policymaker Catherine Mann, who remained a hawk among the nine-member-led Monetary Policy Committee (MPC) team, surprisingly voted for a steady interest rate decision.

In Tuesday’s European session, Catherine Mann clarified that she “Changed her vote on rates due to consumers disciplining firms pricing, changing dynamic in labor markets and financial market curve.” However, Mann warned that markets are pricing in too many rate cuts.

On the Eurozone front, investors hope that the European Central Bank (ECB) will start reducing interest rates sooner. ECB policymaker Madis Muller said on Tuesday that “we’re closer to a point where ECB can start cutting rates.” Easing wage growth has fuelled the ECB’s rate-cut expectations for the June meeting.