- EUR/GBP edges higher for the second straight day, though lacks follow-through buying.
- Bets that the BoE could pause its rate-hiking cycle undermine the GBP and lend support.
- Investors now look to the UK budget for some impetus ahead of the ECB on Thursday.
The EUR/GBP cross edges higher for the second straight day on Wednesday and looks to build on the previous day’s goodish rebound from the 0.8775 area, or over a one-week low. The cross trades with a mild positive bias through the early European session and is currently placed around the 0.8830 region, up less than 0.05% for the day.
Expectations that the Bank of England (BoE) could pause its rate-hiking cycle next week turns out to be a key factor behind the British Pound’s relative underperformance, which, in turn, lends support to the EUR/GBP cross. In fact, the markets are now pricing in around a 40% chance that the BoE will leave interest rates unchanged on March 23 amid signs that UK wages are cooling. The bets were lifted after the UK Office for National Statistics reported on Tuesday that annual growth in average total pay — including bonuses — slowed to 5.7% during the three months to January from 6% the previous month. Excluding bonuses, pay growth eased from 6.7% to 6.5%.
In contrast, several European Central Bank (ECB) policymakers recently backed the case for additional jumbo rate hikes beyond the March meeting. This, in turn, continues to underpin the shared currency and further seems to act as a tailwind for the EUR/GBP cross. Bullish traders, however, seem reluctant to place aggressive bets and prefer to wait on the sidelines ahead of the crucial ECB monetary policy meeting on Thursday. Heading into the key central bank event risk, the UK government’s new budget is due to be presented on Wednesday, which might influence the Sterling Pound and provide some impetus to the cross in the absence of any relevant macro data.
Nevertheless, the abovementioned fundamental backdrop supports prospects for some meaningful upside for the EUR/GBP cross. Even from a technical perspective, the overnight recovery reaffirmed strong support near the 100-day Simple Moving Average (SMA), which should now act as a pivotal point and a strong near-term base for spot prices. A convincing break below, however, will negate the positive outlook and shift the bias in favour of bearish traders, paving the way for an extension of the recent pullback from levels just above the 0.8900 mark.
Technical levels to watch
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Read More
The EUR/GBP currency exchange rate has been struggling to gain traction in recent days, with the pair holding steady around the 0.8830 area. This comes ahead of the upcoming UK budget presentation in Parliament, generating a sense of uncertainty in the market.
Since the beginning of October, the EUR/GBP exchange rate has been moving in a tight range of 0.8780 and 0.8900. These levels are some of the weakest observed since May of this year. The possibility of new fiscal stimulus to be announced in the upcoming UK budget, as well as a potential no-deal Brexit, has sparked speculation that the GBP could weaken in the near future.
At the same time, the Euro has strengthened significantly over the past two months, mainly on hopes of a potential coronavirus vaccine coming soon and the ECB’s accommodative stance. This, coupled with the uncertainty surrounding the UK budget and Brexit negotiations, has caused currency traders to become more cautious before investing in the pair.
Looking ahead, analysts expect EUR/GBP to remain in a fairly tight range throughout the rest of the week. Any news from the UK budget that could provide clarity on the future of the economy and the Brexit negotiations could lead to a shift in the exchange rate. As it stands, the pair appears to be stuck in a range-bound pattern with no clear indication of which direction it will break.
In conclusion, the EUR/GBP exchange rate has been struggling to gain traction in recent days, holding steady around the 0.8830 region ahead of the upcoming UK budget announcement. Traders appear to be uncertain of how to position themselves, as the potential outcomes of the budget as well as Brexit negotiations remain highly unpredictable.
