EUR/GBP rebounds above 0.8600 in Friday trading, shrugging off ECB dovish attitude

• The EUR/GBP saw upside for the week as inflation concerns weigh down the Pound Sterling.
• The ECB's dovish rate hike saw the Euro get sandbagged in the midweek before recovering on rising investor confidence.
• Next week will see EU and UK inflation figures going head-to-head.

The Euro (EU) clipped higher against the Pound Sterling (GBP) on Friday, heading into the end of the trading week in the green, setting a fresh four-week high and geared for further gains.

UK, EU economic calendar week-in-review

This week saw United Kingdom (UK) employment figures dip more than expected, and wage growth came in over forecast, increasing inflation concerns. On the EU side, it was all about the European Central Bank (ECB) this week as the ECB delivered its last rate hike for the foreseeable future.

UK wages printed at 8.5% for the quarter into July, above the forecast 8.2% and a tick higher than the previous reading which was revised higher to 8.4%. An increasing pace of wage growth in the UK will put upward pressure on inflation concerns as the UK battles a flagging economy that is also still exposed to runaway price spirals.

The ECB delivered what is widely expected to be their last rate hike in the current monetary tightening cycle, lifting their main rates 25 basis points to 4% for their overnight deposit facility and 4.5% on the main refinancing rate. 

Despite the rate hike, the ECB managed to achieve a dovish rate increase, with the Euro slumping and European equities getting a boost on the rate headliner. Fears of a readjusted rate schedule spiked earlier this week following an ECB leak that suggested the central bank would be raising their inflation expectations looking forward, but the adjustment wasn’t enough to push the ECB closer to more rate hikes.

Markets are currently pricing in the first rate cut from the ECB in March of 2024.

The first half of next week sees the EU’s Harmonized Index of Consumer Prices (CPI) for August on Tuesday; monthly inflation is expected to hold steady at the previous reading of 0.6%.

On the UK side, Wednesday brings CPI figures for the UK, and August’s MoM inflation figures are forecast to reverse from the previous month’s 0.4% decline, with market analysts anticipating a print of 0.7%.

Producer Price Index (PPI) and Retail Price Index figures are also expected at the same time. Retail prices are expected to increase 0.9% compared to the previous 0.6% decline, but eyes will be focused on the headline CPI figures.

EUR/GBP technical outlook

The EUR/GBP pair rebounded from the midweek’s swing low of 0.8570, set for a Friday close near the 0.8600 handle. Downside resistance is coming from a declining trendline off of July’s swing high int 0.8700.

On the downside, a price floor has firmed up as higher lows get marked in from August’s bottoms, building a support zone from 0.8530 to 0.8510.

The 34-day Exponential Moving Average (EMA) has gone sideways on the chart as price cycles familiar levels, baked in just above 0.8580, and the 200-day Simple Moving Average (SMA) currently sits just below 0.8720 in a softly bearish stance.

EUR/GBP daily chart

EUR/GBP technical levels