Euro hits four-month high against pound on central banks decisions

Euro rose in European trade on Monday against the pound, extending gains for the fourth straight session and scaling a four-month high as the UK-European interest rate gap diminished following recent meetings by Bank of England and the ECB.

Analysts now expect BOE to cut interest rates earlier than the European Central Bank in 2024 to boost the economy. 

EUR/USD rose 0.15% to 0.8702, the highest since May, with a session-low at 0.8680, after rising 0.3% on Friday, the third profit in a row as Bank of England paused interest rate hikes. 

EUR/GBP rose 1% last week, the third weekly profit in a row, and the largest since June.

Such strong profits came following policy meetings by the ECB and BOE, with the ECB raising European rates by 25 basis points while the BOE held British rates unchanged. 

Interest Rate Gap 

Following the meetings, the rate gap between the euro zone and Britain stands at 75 basis points, the lowest since March 2022.

Such a gap is expected to continue unchanged this year as both central banks likely have reached neutral levels.

As for next year, the gap might shrink in favor of the ECB, as Bank of England is expected to cut interest rates early in 2024. 

The UK economy is heading for recession faster than Europe, which necessitates a faster response by policymakers.