Euro Steadies vs Pound as ECB and BoE Rate Hike Bets Offset Each Other

The euro was little changed against the pound on Thursday, as investors weighed persistent inflation pressures in the eurozone and the UK, with rate hike expectations for the two central banks offsetting each other and keeping the currency pair in a narrow tug-of-war. At the time of writing, the pair was trading at 0.85734, nearly unchanged from the earlier level of 0.8580.

**Inflation Data Supports Tightening Expectations**

The latest eurozone inflation data provided support for rate hike expectations. Eurozone inflation accelerated to 2.9% in July, according to reports, keeping the possibility of another European Central Bank rate hike at its September meeting alive. Meanwhile, the Bank of England faces similarly stubborn inflation pressures, with market bets on earlier rate hikes not fading. This synchronized tightening outlook lent support to both the euro and the pound, making it difficult for the exchange rate between the two to break out in a single direction.

**Analysts Divided on Outlook**

Market views on the future direction of the euro/pound are split. Some analysts argue that the BoE may act earlier, which would provide more upside for the pound against the euro. However, others point out that the eurozone economy has shown some resilience, with second-quarter growth beating expectations at 0.4% quarter-on-quarter, the fastest since early 2025, which limits the euro's downside. ING also noted that dry weather has led to low water levels in European rivers, hindering industrial water transport, which could pose an additional drag on the euro.

**Market Awaits New Catalysts**

Currently, there is no decisive new information to break the balance. Investors are closely watching upcoming economic data and central bank officials' speeches to gauge the divergence in future policy paths between the two major economies. Until clearer signals emerge, the euro/pound is likely to continue fluctuating around current levels.