EUR/GBP rises above 0.8600 following hawkish comments from ECB’s Lagarde

• EUR/GBP rises as ECB President Lagarde signals readiness to take all necessary measures to achieve the inflation target.
• A senior ECB official warned that excessive Euro strength could drive inflation below the ECB’s 2% target.
• UK PM Starmer confirmed that Chancellor Reeves will remain in her role for a very long time to come.

EUR/GBP inches higher after registering 0.50% losses in the previous session, trading around 0.8610 during the early European hours on Friday. The currency cross attempts to regain its ground as the Euro (EUR) may appreciate against its peers, following the comments from the European Central Bank (ECB) President Christine Lagarde.

President Lagarde said that “we will do whatever we must do to reach the inflation target.” She also added that the economic system needs to become more efficient before the Euro can boost its global currency status. The Financial Times (FT) cited a senior ECB official, saying that the central bank may need to signal that too much strengthening in the Euro could be an issue, as it could push inflation below the ECB’s 2% target level.

However, the EUR/GBP cross may extend its losses as the Pound Sterling (GBP) receives support amid easing market concerns over a shift to a looser fiscal stance with higher borrowing, following speculation about a potential replacement for Chancellor Rachel Reeves. UK Prime Minister Keir Starmer addressed these concerns by defending Reeves and affirming that she will remain in her role “for a very long time to come.”

The Bank of England (BoE) is expected to deliver an interest rate cut in August, taking the central bank’s base rate to 4%, following dovish remarks from officials. BoE Governor Andrew Bailey told CNBC on Tuesday that interest rates should come down gradually as inflationary pressures appear to be easing. However, BoE policymaker Alan Taylor said that “I don't think bigger cuts are necessarily needed or desirable.”