Euro sharpens losses to two-week low against pound

Euro declined in European trade against basket of major rivals, sharpening losses for the second straight session against the pound, and hitting a two-week trough on prospects the ECB will cut interest rates faster this year than Bank of England. 

Such forecasts come as European inflation slows down to near the ECB's 2% target, while UK inflation remains more stubborn.

EUR/GBP 

EUR/GBP fell 0.3% to 0.8645, the lowest since December 20, with a session-high at 0.8670, after losing 0.2% on Friday, the first loss in three days on profit-taking away from a five-week high at 0.8715. 

Euro tumbled 1.9% against the pound in 2023, the second yearly loss in three years, as BOE grew more aggressive in policy tightening compared to the ECB.

European Rates

Following the ECB's latest policy meeting, markets now expect 150 basis points of total interest rate cuts by the ECB this year.

To regauge such estimates, markets now await mainline European inflation data for December. 

UK Rates

Now markets are pricing in 125 basis points of interest rates cuts by the BOE this year, which is below the estimated cuts by the ECB, in turn underpinning the pound.

UK consumer prices remain stubbornly off the BOE's 2% target, thus requiring a more aggressive policy.