• EUR/GBP edges lower on Monday after brief volatility triggered by political jitters in the United Kingdom.
• UK PM Keir Starmer faces a parliamentary vote over a probe into Peter Mandelson's appointment.
• Focus shifts to ECB and BoE meetings, with rates seen on hold and attention on forward guidance.

EUR/GBP edges lower on Monday after brief volatility triggered by political jitters in the United Kingdom (UK). At the time of writing, the cross is trading around 0.8658, easing from an intraday high of 0.8676.

The British Pound (GBP) came under modest pressure before trimming losses following reports that UK Prime Minister Keir Starmer will face a parliamentary vote on a possible probe into whether he misled lawmakers over the appointment of Peter Mandelson as ambassador to the United States. The House of Commons is set to vote on Tuesday on whether to refer Starmer to the privileges committee.

EUR/GBP maintains a mild downside bias since the start of the month as traders reassess the monetary policy outlook amid rising inflation risks driven by higher Oil prices linked to the US-Iran war. While markets are increasingly pricing in the possibility of interest rate hikes from both the European Central Bank (ECB) and the Bank of England (BoE), recent UK economic data has tilted expectations more hawkishly toward the BoE.

As noted by MUFG’s Lee Hardman, "The pound has been supported by the hawkish repricing of BoE rate hike expectations encouraged by further evidence of stronger UK growth momentum at the start of this year while underlying inflation pressures remained uncomfortably high at the start of the energy price shock."

Attention now turns to upcoming monetary policy meetings due on Thursday. The BoE is widely expected to keep its policy rate at 3.75% for a third consecutive meeting, while the ECB is also expected to hold rates steady at 2.00% for a seventh straight meeting.

With the outcome largely priced in, the focus will shift to forward guidance as traders look for clearer signals on the interest rate path and whether recent hawkish expectations are justified.

According to a BHH report, the swaps curve suggests around 60 basis points of rate hikes from the ECB over the next 12 months. In comparison, the swaps curve points to roughly 75 basis points of tightening from the BoE over the same period.