CFD Trading Rate Euro vs Great Britain Pound (EURGBP)

• EUR/GBP faces stiff pressure near 0.8540 ahead of UK data.
• BoE Bailey is expected to provide fresh guidance on interest rates.
• The ECB would ease key rates before the BoE.

The EUR/GBP pair faces pressure while attempting to extend recovery above the immediate resistance of 0.8540 in the European session on Monday. The cross is expected to remain on the tenterhooks as investors await the United Kingdom Employment data for three months ending December, which will be published on Tuesday.

Investors anticipate that the Unemployment Rate falls to 4.0% from 4.2% in three months ending November. In the same period, the Average Earnings, Excluding bonuses, are forecast to have grown at a slower pace of 6.0% against the former reading of 6.6%. A sharp decline in wage growth momentum would prompt expectations of rate cuts by the Bank of England (BoE).

In today’s session, the speech from BoE Governor Andrew Bailey will be the focus. BoE Bailey will provide cues about likely monetary policy action in March.

The Pound Sterling is expected to remain volatile as the UK’s inflation, factory, and retail sales data are lined up for release after Tuesday’s Employment data.

The broader appeal for the Euro is weak against the Pound Sterling as investors hope that the European Central Bank (ECB) will start reducing key rates earlier than the BoE. Price pressures in the Eurozone economy are consistently declining. However, ECB policymakers will ensure that inflation will sustainably return to the 2% target before announcing rate cuts. ECB President Christine Lagarde anticipated that the central bank should consider rate cuts in late Spring.

• The EUR/GBP currently trades at 0.8536, reflecting minor losses on Friday.
• The pair will tally a seven-week losing streak.
• Focus is set on next week's British economic data including inflation and labor market reports.
• A more hawkish stance of the BoE in relation to the ECB gives the Pound traction.

On Friday's session, the EUR/GBP traded at 0.8536, posting mild losses amid contrasting monetary policy expectations from the European Central Bank (ECB) and the Bank of England (BoE) ahead of key economic figures of the British economy to be released next week. Meanwhile, the technical scenario remains bearish on the weekly and daily chart with bears gaining ground and tallying a seven-week selling spree.

Adding to that, despite the ECB pushing back against market easing expectations, a 55% chance of an interest rate cut in April is still predicted. On the other hand, markets are expecting a potential uptick in inflation in the UK, with the Consumer Price Index (CPI) expected to have risen by 4.1% YoY in January, prompting a greater likelihood of the BoE delaying cuts. The inflation report is due on Wednesday and on Tuesday, the UK will release labor market figures which will also shape the expectations of the next decisions. As for now, markets are seeing 100 bps of easing by the British bank, and 125 bps of easing from its European peer, and as long as investors bet on more easing by the ECB, the pair could continue falling.

EUR/GBP technical analysis

From a technical viewpoint, the daily and weekly chart's negative direction of the Relative Strength Index (RSI) and the cross dwelling under its 20, 100, and 200-day Simple Moving Averages (SMAs) insinuate bearish dominance. This indicates that bearish momentum persists and selling pressure is primarily in control. The current seven-week losing streak of the pair also reinforces the negative outlook leaving the cross exposed for further downside.

EUR/GBP weekly chart

• The EUR/GBP currently trades at 0.8540, recording a 0.10% on Thursday.
• Monetary policy divergences between the BoE and ECB will eventually benefit the GBP.
• Markets are leaning toward a rate cut by the ECB in April while the BoE is seen starting in June.

In Thursday's session, the EUR/GBP pair is seen at 0.8540, posting modest gains. The pair is receiving pressure from a dovish stance by the European Central Bank (ECB), tipping rate cut odds for April. Meanwhile, GBP maintains its undercurrent due to the Bank of England (BoE) monetary policy which seems to be pushing the easing cycle to June.

Adding to that, markets currently price in about 65% odds for rate cuts to commence in April, predicting 125 bp worth of easing this year, despite ongoing resistance from ECB officials. On the other hand, for the BoE, investors anticipate about 100 bp of rate cuts in the next 12 months, beginning in June due to the recent economic figures which suggest that the British economy remains resilient. Moreover, as long as the UK's economy continues to show strength and markets delay the BoE's interest rate cuts, the cross may see further downside.

EUR/GBP technical analysis

The daily chart indicators indicate a possible dominance of buying momentum. The Relative Strength Index (RSI) is on a positive slope but in negative territory, revealing an increasing strength of the buying force. Concurrently, the Moving Average Convergence Divergence (MACD) shows rising green bars, suggesting that the bullish sentiment is taking hold. However, it's crucial to note that the pair is currently trading under the 20, 100, and 200-day Simple Moving Averages (SMAs), pointing towards the prevailing strength of the bears in a broader perspective. This situation proposes a challenging scenario for the buyers, despite the recent signs of a bullish recovery.

EUR/GBP daily chart

• EUR/GBP falls to near 0.8530 as soft Eurozone data deepen ECB rate-cut bets.
• ECB Cos is confident about inflation declining towards the 2% target.
• UK companies are becoming optimistic about BoE’s rate-cut prospects.

The EUR/GBP pair falls sharply to near 0.8530 on December's downbeat German Industrial Production data. The industrial output of the world’s fourth largest economy was down at a sharp pace of 1.6% monthly, while market participants projected a decline of 0.6%. In November, the economic data was contracted by 0.2%.

The Eurozone economy is underperforming due to labor market, consumer spending and manufacturing activities. And, now, downbeat Industrial Production data has added to indicators deepening chances of early rate cuts by the European Central Bank (ECB).

Odds of an early rate cuts by the ECB stemmed after policymaker Pablo Hernandez de Cos said on Tuesday, "it is already very important for European citizens to know that we are confident the next move will be a cut.” In the commentary, ECB Cos showed confidence in inflation declining towards the 2% target.

On the contrary, ECB executive board member Isabel Schnabel said in late Asian session on Wednesday that the last mile in bringing down inflation towards the 2% target will be the most difficult one. Schnabel warned that early rate cuts could flare up price pressures again.

Meanwhile, the Pound Sterling performs better against the Euro as the economic prospects of the United Kingdom's economy are improving again. UK service sector and construction companies have become more optimistic about fading recession risks and rate cuts by the Bank of England (BoE) amid easing price pressures.

• The EUR/GBP trades lower at 0.8540,with a 0.30% drop.
• Declining RSI on the daily chart stands indicative of mounting selling pressure.
• On a shorter four-hour chart span, flat indicators in negative territory after a sharp plunge during the European session.

In Tuesday's session, the EUR/GBP pair was seen taking a dip to 0.8540, falling below the 20-day Simple Moving Average (SMA). The mix of hawkish US Federal Reserve bets, rising US Treasury yields and negative Eurozone Retail Sales figures from December, drove down the cross. Technically speaking, bears still dominate the daily chart while indicators flattened in negative territory on the four-hour chart.

EUR/GBP levels to watch

Evaluating the daily chart, the lingering presence of selling pressure is evident. This is mirrored through the Relative Strength Index (RSI), which is traced in a downward trajectory in negative territory which signals the persistent dominance of sellers. The Moving Average Convergence Divergence (MACD) exhibits stability with flat green bars, pointing towards a restrained bullish traction. Moreover, the pair’s position under the 20, 100, and 200-day Simple Moving Averages (SMAs) underlines the prevailing bearish trend on a broader scale. The fact that the bulls failed to consolidate above the 20-day SMA also speaks of a bearish bias.

Shifting to the short-term technical outlook on the four-hour chart, it further underpins the bearish sentiment. The indicators are rather stale in the negative region, which were previously on a sharp descent during the European session. This combination of signals suggest that the cross may consolidate losses during the rest of the session but that the overall trend is still tilted to the downside.

EUR/GBP daily chart

EUR/GBP has experienced a deeper down move after giving up the 200-Day Moving Average (DMA) last month now at 0.8625. Economists at Société Général analyze the pair’s outlook. 

0.8490 is first support

After a strong start to the year, the Pound Sterling (GBP) has retreated somewhat at the start of February. Economists at ING analyze GBP outlook.

BoE talks rate cuts

• EUR/GBP faces a challenge as the BoE is expected to avoid rate cuts in its upcoming meeting.
• BoE Chief Economist Huw Pill called the expectation of interest rate cut premature.
• OECD anticipated EU inflation to persist above the ECB's 2% target until some point after 2025.

EUR/USD snaps its three-day winning streak, edging lower to around 0.8570 during the Asian session on Tuesday. However, the Pound Sterling (GBP) might have received upward support against the Euro (EUR) from the improved Purchasing Managers Index (PMI) data from the United Kingdom (UK). Furthermore, traders will likely watch the Retail Sales data from both economies on Tuesday.

The Bank of England's (BoE) Chief Economist and Executive Director for Monetary Analysis, Huw Pill, stated on Monday that although the prevailing sentiment points toward potential interest rate cuts in the future, expectations for such cuts might be premature. Pill emphasized that the BoE is seeking more robust evidence that UK inflation will continue to decrease in the coming months before considering any rate-cutting measures.

UK S&P Global/CIPS Composite PMI increased to a reading of 52.9 against the market expectation of remaining the same at 52.5 in January. Meanwhile, Services PMI improved to 54.3 as compared to the expected 53.8. On the other side, the annual EU Producer Price Index (PPI) saw a substantial decline of 10.6% in December, surpassing the expected decrease of 10.5% and exceeding the previous figure of 8.8%. Meanwhile, the monthly index exhibited a fall of 0.8%, in line with expectations, with the previous decline being 0.3%.

The EUR/GBP cross experienced downward pressure as the EU block is grappling with a disinflationary trend, raising the possibility that the European Central Bank (ECB) may contemplate implementing policy measures to address the situation. According to the Organisation for Economic Co-operation and Development (OECD), inflation in Europe is anticipated to persist above the ECB's 2% target until some point after 2025.

• The EUR/GBP stands at 0.8560, marking a 0.25% increase in the session.
• European PMIs from January where upwards revised but remained still in contraction territory.
• Hourly indicators hint at potential consolidation after bulls got rejected near overbought area.

In Monday's session, the EUR/GBP pair was seen trading at 0.8560, gaining a 0.25% and seems to be marching towards the 20-day Simple Moving Average (SMA) at 0.8565 . Despite pressures from a stagnant Euro Area economy and anticipations of ECB's rate cut, the daily chart indicates the dominance of buyers. On the hourly chart, however, indicators hint at a possible pullback as they got rejected near the overbought territory.

During the European session, the Hamburg Commercial Bank (HCOB) PMIs from January where upwards revised which gave some traction to the EUR but they still remain deep in contraction area. This situation may push the ECB to initiate a rate cut by June 2024, assuming the economies continue to weaken. Conversely, the UK economy shows signs of potential firmness with the Bank of England (BoE) shifting from assessing the need for restrictive monetary policy to sustaining the current stance. Following the bank's decision to hold rates, market anticipates around 100 bps of rate cuts for 2024, which might be moderated due to expected fiscal amendments. On the ECB side, markets expect between 125 and 150 bps of easing in 2024 and this divergences may eventually limit any upwards movements by the cross.

EUR/GBP levels to watch

Assessing the daily chart indicators, the Relative Strength Index (RSI) is glimpsing a positive gradient despite being within negative territory. This exhibits a potential shift towards an upward trend as bulls start to conquer additional ground. In addition, the Moving Average Convergence Divergence (MACD) is exhibiting increased green bars, suggesting that the upward force is taking control. The shift in momentum may come into fruition in case the buyers manage to push the pair back above the 20-day Simple Moving Average (SMA) .

Switching to the hourly chart for the more immediate perspective, the scenario seems to be a bit more complicated for the bulls. Even though indicators have been rebuffed near overbought territory, the RSI portrays a downward slope positioned within positive territory, indicating some selling momentum as buyers seem to be taking profits. However, the sustained growth in the green bars of the MACD identifies a continuous buying pressure in the shorter timeframe. 

EUR/GBP daily chart

• EUR/GBP rebounds sharply from 0.8520 as BoE could lean towards early rate cuts.
• Fears of a recession in the UK economy have deepened.
• The ECB is expected to start the rate-cut campaign.

The EUR/GBP pair discovers strong buying interest near 0.8520 in the late European session. The asset recovered as investors saw the Bank of England (BoE) reducing interest rates earlier than market participants anticipated.

In the revised estimates, the United Kingdom Office for National Statistics (ONS) reported a contraction in the third quarter of 2023 by 0.1%. The UK economy is underperforming due to labor market and consumer spending, which could lead to a further slowdown in the fourth quarter. The UK economy would be considered in a technical recession if it contracts for the second time in a row.

In the BoE’s monetary policy announced last week, policymakers decided to keep interest rates at 5.25%. When asked about rate cuts, the BoE said they are unlikely until there is evidence that inflation will return sustainably to the 2% target. Swati Dhingra voted for a reduction in interest rates by 25 basis points (bps).

The Pound Sterling faces pressure against the Euro despite the S&P Global reported upbeat Service PMI data for January. The economic data landed at 54.3, which remained better than the expectations, and the former reading of 53.4.

On the Eurozone front, the European Central Bank (ECB) sees interest rates declining from late Summer as current price pressures exceed the central bank's desires. The progress in inflation declining towards 2% is much stronger as producers have significantly reduced prices of goods and services offered at factory gates. In December, the annual Producer Price Index (PPI) deflated at a stronger pace of 10.6% against expectations of 10.5% and the prior figure of 8.8%.