- EUR/GBP gained support as demand for increased deficit spending rose among the Eurozone’s largest economies.
- Germany approved a landmark €500 billion spending package for defense and infrastructure, substantially raising national debt.
- Traders await the Bank of England’s interest rate decision on Thursday.
EUR/GBP remains steady after gaining in the previous session, hovering around 0.8420 during Asian trading hours on Wednesday. The cross strengthened as the Euro (EUR) found support amid rising demand for increased deficit spending among the Eurozone’s largest economies. In Germany, major political parties—including the CDU/CSU bloc, SPD, and Greens—approved a historic €500 billion spending package for defense and infrastructure, significantly increasing national debt.
Additionally, the Euro may benefit from improved risk sentiment amid hopes for a ceasefire between Russia and Ukraine. On Tuesday, US President Donald Trump and Russian President Vladimir Putin agreed to an immediate pause in strikes on energy infrastructure. However, Putin refused to endorse a broader, month-long ceasefire negotiated by Trump’s team with Ukrainian officials in Saudi Arabia.
On the monetary policy front, traders have scaled back expectations for European Central Bank (ECB) rate cuts this year, now pricing in only two reductions—likely in April and June. Additionally, interest rates are no longer expected to drop below 2%.
The Pound Sterling (GBP) trades cautiously as investors focus on the Bank of England’s (BoE) interest rate decision on Thursday. Markets widely anticipate the BoE will maintain borrowing costs at 4.5%, with a likely 7-2 vote split.
BoE Monetary Policy Committee (MPC) members Catherine Mann and Swati Dhingra are expected to advocate for a rate cut. In February, both pushed for a larger-than-usual 50 basis-point (bps) reduction, while the majority favored a more conventional 25 bps cut.