EUR/GBP trims gains after British inflation data, BoE decision looms

• Core and headline inflation figures were softer than expected for February.
• Monetary policy divergences between the BoE and ECB continue favoring the GBP.
• The BoE meets on Thursday, a hold is priced in and the first cut is seen in August.
• The first cut from the ECB was seen in June.

The EUR/GBP is currently experiencing mild gains, trading at 0.8541 after peaking at a high of 0.8560. Markets are digesting British inflation data from February and gearing up for the Bank of England’s (BoE) decision on Thursday. In the meantime, monetary policy divergences between the BoE and the European Central Bank (ECB) give the GBP an advantage over the EUR/p>

The UK saw a softening in February CPI figures, with headline inflation at 3.4% YoY compared to January's 4.0%, and core inflation at 4.5% YoY down from 5.1%. Despite expectations, these numbers were slightly lower, marking the lowest since September 2021 but still above the 2% target. With the Bank of England's decision imminent, a policy hold is anticipated. However, given persistently high services inflation at 6.1% YoY, the BOE may take time to loosen policy. Market expectations of a 25 bp rate cut in August followed by two more by year-end are fully priced in. On the other hand, the ECB easing cycle is seen starting in June, followed by cuts in September and October. Investors see some chances of an additional cut in December as well.

EUR/GBP technical analysis

On the daily chart, the Relative Strength Index (RSI) for the EUR/GBP pair resides in negative territory, suggesting a slight bearish momentum. Despite brief transitions into positive territory, the RSI has reverted to negative levels in recent sessions, revealing that sellers maintain dominance. The green bars on the Moving Average Convergence Divergence (MACD) histogram reflect positive momentum, albeit flat, potentially indicating a weak presence of the bulls.

Regarding the overall trend, the pair is trading below its 20, 100, and 200-hour Simple Moving Averages, which gives arguments for a bearish outlook

EUR/GBP daily chart