EUR/GBP falls below the 0.8560 area following hot UK labour data

• The EUR/GBP erased most of Monday’s gains and eyes multi-month lows at 0.8535.
• Wage inflation in the UK accelerated in May, and Unemployment decreased in the three months leading up to April.
• Hawkish bets and rising UK yields give the Sterling traction.

The EUR/GBP retreated to the 0.8555 area during Tuesday’s session, erasing most of Monday’s gains +.. Moreover, the Sterling traded strong against the USD, JPY ,CHF, AUD and NZD as hot labour-market data from the UK fueled hawkish bets on the Bank of England (BoE) and a rise in British yields.

British yields support the Sterling after hot labour-market data

The UK Office for National Statistics reported a decrease in jobless benefit claims by 9.6K in May, down from the previous figure of 46.7K . The Unemployment Rate slightly dropped to 3.8% instead of the expected 4% in the three months leading up to April. Average earnings, including and excluding bonuses, which serve as a gauge of wage inflation to the BoE, also rose during this period. That being said, British yields increased across the board with the 2-year rate leading the way, seeing a 5% rise to 4.88%, its highest level since 2008.

Ahead of the June 22 meeting, a 25 basis point (bps) hike is already priced in. Likewise, investors are also discounting hikes for the August, September, and November meeting, and hence a policy rate peaking at 5.5%. However, the short-term trajectory of the Sterling will be determined by the updated macro forecast of the BoE, and investors will pay attention to any clues in the monetary report or the Governor Bailey press conference regarding forward guidance.

On the other hand, Euro price dynamics will also be determined by the European Central Bank (ECB) decision on Thursday and the macroeconomic forecast of its members. As for now, investors fully priced in a 25 bps hike announcement.

EUR/GBP Levels to watch

According to the daily chart, the EUR/GBP maintains a bearish outlook for the short-term. Despite Monday’s impressive gains, indicators still remain deep in negative territory while the pair trades well below the 20-,100- and 200-day Simple Moving Averages (SMAs), near August 2022 lows of 0.8535.

Supports levels to watch: 0.8550, 0.8545, 0.8535
Resistances levels to watch: 0.8600 (psychological mark), 0.8620, 20-day SMA at 0.8636.