EUR/GBP seesaws around 0.8590 as BoE and ECB’s decisions loom

• The Euro tumbles against the Pound Sterling ahead of BoE and ECB’s decisions.
• EU’s Industrial Production in November was weaker than expected, exerting pressure on the Euro.
• The Bank of England and the European Central Bank are expected to hike rates by 50 bps, favoring the GBP.

The EUR/GBP stalled at the 20-day Exponential Moving Average (EMA) at 0.8622 and retraces below the 0.8500 psychological mark, courtesy of broad Pound Sterling (GBP) strength, ahead of monetary policy decisions by the Bank of England (BoE) and the European Central Bank (ECB) on Thursday. Therefore, the EUR/GBP is trading at 0.8584, below its opening price, at the time of writing.

Sentiment remains optimistic ahead of the Federal Reserve monetary policy decision, as shown by US equities. Aside from this, the Euro (EUR) remains downward pressured against the British Pound (GBP), on the economic outlook of both countries. Although in the Euro area, the economic downturn expected in Germany eased, estimations that Germany and Italy would hit a recession remained due to its dependence on industry and reliance on expensive energy.

In the meantime, the Eurozone economic docket featured November’s Industrial Production (IP) for the bloc, with data coming worse than expected at a 2% contraction, beneath estimates of a 1.5% MoM drop, while year-over-year IP remained unchanged at 3.4%.

In the UK, inflation cooled in November from 11.1% to 10.7%, surprising economists who had expected it to remain flat at 10.9%. However, core CPI was still three times higher than what BoE targets as its goal of 2%. A further decrease may be necessary for households within Britain that have struggled with increasing expenses throughout 2020 due mainly to economic hardships caused by Covid-19 pandemic restrictions.

What to watch

The Bank of England (BoE) and the European Central Bank (ECB) are expected to hike rates by 50 bps, which would favor the UK. If both central banks increased rates as expected, the BoE would have the upper hand at 3.50% vs. 2.50% by the ECB. Therefore, further EUR/GBP downside is expected, with traders eyeing a clear break below the 200-day Exponential Moving Average (EMA) at 0.8585.

EUR/GBP Key Technical Levels