Euro Bounces Back on Diverging ECB-BoE Interest Rate Paths

The British Pound (GBP) weakened against major peers on Tuesday after Bank of England Governor Andrew Bailey made cautious remarks, causing the Euro (EUR) to rebound.

Bailey testified before the UK Treasury Select Committee and stated that 'Risks to inflation are to the upside,' while also saying he doesn't think the market is on the verge of a recession. He noted that investors are concerned about further energy price rises, which are reflected in the BoE rate curve.

The comments reinforce expectations that the Bank Rate will remain unchanged at 3.75% next week, as all 65 economists surveyed by Reuters expect the Monetary Policy Committee to keep rates on hold next week, and 57 expect no change for the rest of the year.

In contrast, the European Central Bank is widely expected to raise its deposit rate by 25 basis points to 2.50% on Thursday, marking its second increase this year, which could maintain the Euro's favour against the Pound.