EUR/GBP rises to two-week high amid rising German yields

• EUR/GBP gained more than 0.70% between Wednesday and Thursday, standing at 0.8660.
• German yields are rising despite soft inflation figures from Italy.
• Tightening cycles are pressuring up mortgages in the UK.

On Thursday, the EUR continued to trade strong against most of its rivals despite rising German yields, while the GBP continued to trade weak. On one side, Italy reported soft inflation figures while the UK reported a worrying in the housing sector suggestion that the Bank of England’s (BoE) tightening cycle is pressuring up mortgages. 

Italy reported soft inflation figures from July, with the headline Consumer Price Index (CPI) remaining steady vs the 0.1% increase expected, and the YoY measure dropped to 5.9%.

That being said, the German yields are rising. The 10-year bond yield stands at 2.54%, while the 2-year yield is at 3.17% and the 5-year yielding 2.59%, showing more than 1% advances. The European Central Bank (ECB) expectations remain steady, but markets continue to bet on low odds of a hike in September. It will all come down to the incoming data the bank receives.

On the British side, it was reported that the BoE’s tightening cycle is significantly straining household budgets, as evidenced by a nearly 30% increase in arrears for UK buy-to-let mortgages in Q2, along with a more moderate 7% rise in primary homeowner mortgage arrears. However, the BoE will continue hiking, and markets are pricing an additional 50 bps of tightening for this cycle. In the meantime, the Pound may see further downside if the economy continues to show weakness.

EUR/GBP Levels to watch

According to the daily chart, the technical outlook for the EUR/GBP remains neutral to bullish as the bulls are recovering ground. The Relative Strength Index (RSI) shows an upward trend above its midline, while the Moving Average Convergence (MACD) histogram presents larger green bars. On the other hand, the pair is above the 20-day Simple Moving Average (SMA) but below the 100 and 200-day SMAs, suggesting that despite the recent bearish sentiment, the bulls are still resilient, holding some momentum.

Support levels: 0.8640, 0.8600 (20-day SMA), 0.8570.

Resistance levels: 0.8670 (100-day SMA), 0.8700, 0.8722 (200-day SMA).

EUR/GBP Daily Chart