EUR/GBP hovers near five-week trough

Euro declined in European trade against the pound on Tuesday, resuming losses after a two-day hiatus, and almost touching a five-week trough, amid renewed expectations of a widening interest rate gap between Europe and the UK, in the favor of UK. 

The European Central Bank remained split on the decision of interest rates at the September meeting, waiting for more European data to gauge the likely path ahead. 

EUR/USD fell 0.15% to 0.8529, with a session-high at 0.8545, after rising 0.1% yesterday, the second profit in a row, away from a five-week low at 0.8521. 

European Rates

The ECB recently linked any potential interest rate hikes in the future to upcoming data in the euro zone.

Investors await important European services and manufacturing data for August, in addition to a speech by ECB President Christine Lagarde at the Jackson Hall global forum.

UK Rates

Recent strong UK inflation data showcased the continuous inflationary pressures on Bank of England and the need to continue tightening monetary policies.

Such data bolstered the case for a 0.25% UK interest rate hike at the Bank of England's next September meeting. 

Interest Rate Gap

The current gap in interest rates between Europe and the UK stands at 100 basis points, and could increase to 125 basis points by the end of next month, in favor of Britain.