Euro Rebounds Against Pound as ECB-BoE Rate Paths Diverge

The Euro rebounded against the British Pound on Tuesday after slipping to a six-day low earlier in the day. The recovery comes as the British Pound weakens against most of its major peers following cautious remarks from Bank of England Governor Andrew Bailey.

During the Monetary Policy Report hearing, Bailey noted that 'Risks to inflation are to the upside,' while adding that he does not think the UK is on the verge of a recession. He also stated that 'the market's BoE rate curve reflects investors' concern about further energy price rises.'

The comments reinforce expectations that the BoE will leave the Bank Rate unchanged at 3.75% on September 17. All 65 economists surveyed by Reuters between September 4 and 8 expect the Monetary Policy Committee to keep rates on hold next week, while 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. This policy divergence should keep the Euro favored against the Pound.