Hawkish ECB signals fuel expectations of a June rate hike, contrasting with scaled-back BoE tightening bets after UK inflation data softened.
The EUR/GBP pair rose to near 0.8650 in early European trading, supported by hawkish comments from ECB policymakers. Francois Villeroy de Galhau and Isabel Schnabel hinted at a June rate hike, citing persistent inflation risks despite potential geopolitical easing.
Markets have fully priced in two 25-basis-point ECB hikes, with a 50% chance of a third. Economists, however, expect only two hikes before a mid-2027 cut, per a Reuters poll. Meanwhile, UK rate hike expectations dimmed after softer inflation and a rise in unemployment to 5.0%.
Gilt yields posted their largest weekly drop since late 2023, driven by lower oil prices and reduced political uncertainty, according to Pantheon Macroeconomics.