Euro consolidates losses against British Pound awaiting ECB decision

• EUR/GBP consolidates below 0.8400, on track for a 2.8% decline in a five-week downtrend.
• The ECB is expected to leave interet rates on hold and hint at a rate hike in December.
• The GBP remained steady after the release of Chancellor Healey's budget on Wednesday.

The Euro (EUR) posts minor losses against the British Pound (GBP) on Thursday, trading within Wednesday’s range, as investors await the European Central Bank’s (ECB) monetary policy decision, due later in the day. The EUR/GBP pair eases to the 0.8365 area from session highs at 0.8374, and remains on track for a 2.8% selloff in a five-week downtrend.

The ECB is widely expected to leave its benchmark interest rate unchanged at 2.5%, and leave the door open to a rate hike in December, as inflation in the Euro Area keeps growing well above the bank’s target. That said, the elephant in the room will be France’s debt, which has reached critical levels, boosting fears of another credit crisis in the Euro Area.

France risks complicate ECB's tightening path

Looking ahead, analysts at Commerzbank caution that “every interest rate hike by the ECB naturally also raises yields and thus exacerbates France’s problem of getting its public debt under control due to rising interest payments.”

Against this backdrop, Commerzbank expects the ECB “to exercise caution when it comes to announcing further interest rate hikes next year,” as “overall inflation (due to the base effect) will fall next year,” providing another reason for a “wait-and-see stance.”

In the UK, Chancellor John Healey announced the first budget of Prime Minister Andy Burnham's cabinet. Healey announced a GBP 100 energy payment for up to 20 million households and the removal of standing charges, and increases in taxes on property rentals, large individual savings and bank profits. The Pound was little moved after the release.

The Bank of England meets next week and is widely expected to ike interest rates by a quarter point, amid robust economic growth and higher inflation pressures. This is likely to keep Pound dips subdued over the coming days.