EUR/GBP Steadies Ahead of the Bank of England Rate Decision

  • EURGBP
    (${instrument.percentChange}%)

EUR/GBP Analysis

The European Central Bank slowed the pace of tightening last wee, with quarter-percentage point increase, which was the smallest adjustment since the July 2022 lift-off. Despite this moderation, officials maintained their aggressive stance, noting that future decision will "ensure" sufficiently restrictive rates to bring inflation down to the 2% target in a timely manner. [1]

President Lagarde succinctly pointed to more tightening, stating that "we have more ground to cover" and dismissed any thoughts of a pause. Since then we have seen a series of hawkish remarks by ECB members, with Mr Kazimir for instance saying yesterday that "we will have to keep raising interest rates for longer than anticipated" based on current data [2].

The Bank of England was one of the first major central banks to start raising rates all the way back in December 2021, with eleven consecutive moves since then. It seems to have been reluctantly hiking recently though, with a non-comital stance and murky guidance, as the UK economy is a rough shape.

However, it managed to eke out 0.1% q/q growth and avoid a second straight contraction. More to it, the labor market is tight with elevated wages and the cost of lisving is high, as a CPI inflation stayed above 10% in March. As such, the Bank of England is largely expected to deliver another 0.25% rate increase at Thursday's meeting, the outcome of which will likely determine the next leg of EUR/GBP.

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The pair failed to benefit from the ECB's hawkish stance and expectations for more tightening from its UK counterpart have led to a losing month so far. EUR/GBP started the day with fresh 2023 lows and is now vulnerable to the ascending trendline form the 2022 lows (at around 0.6800).

However, the common currency catches a breath today and the Relative Strength Index (RSI) is at oversold territory. This can help a recovery above the 200Days EMA (0.8730), but from 0.8790 on, there are multiple rodablocks and a strong catalyst will be required for further gains.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 09 May 2023 https://www.ecb.europa.eu/press/pressconf/2023/html/ecb.is230504~f242392c72.en.html

2

Retrieved 02 Mar 2024 https://nbs.sk/en/news/are-we-there-yet-no-definitely-not/

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