EUR/GBP Pullback Watched by SA as Eurozone, UK Economies Shift

  • The Euro to British Pound (EUR/GBP) pair recorded an intraday drop of 0.12%, marking its first daily loss in four days around the 0.8600 mark, extending the late Thursday pullback from a two-week high.
  • Mixed economic indicators from the Eurozone, including soft Producer Price Index (PPI) figures and comments from ECB board member Fabio Panetta, have impacted the EUR/GBP pair. Meanwhile, the Bank of England (BoE) has raised interest rates to the highest level in 15 years, further influencing the currency pair.
  • These global financial shifts, specifically in the Eurozone and the UK, can have significant impacts on the South African Rand, given that fluctuations in major currency pairs often influence emerging market currencies.

The Euro to British Pound (EUR/GBP) pair records an intraday drop of 0.12%, marking its first daily loss in the past four days as it hovers around the 0.8600 mark. This comes as we head into Friday’s European session. In this scenario, the cross-currency pair builds on its late Thursday pivot away from a two-week high, as market participants keenly anticipate significant triggers from both the Eurozone and the UK.

The soft figures of the Eurozone’s Producer Price Index (PPI) for June, the lowest in three years at -3.4% YoY, versus an expected -3.1% and a revised -1.6% prior, initially impacted the EUR/GBP price before the Bank of England (BoE) Interest Rate Decision. This potentially contributed to the weakening of the quote. Furthermore, the final readings of the bloc’s HCOB Composite PMI and Services PMI for July fell short of expectations, while the corresponding figures for Germany exceeded initial forecasts for the said month.

Notably, mixed remarks from European Central Bank (ECB) board member Fabio Panetta also influenced the pair. In a webinar, Panetta advocated for maintaining high interest rates over an extended period. However, he also noted that “Inflation risks are balanced and economic activity is weak.”

On the other hand, the BoE met market predictions by raising the benchmark interest rates to the highest level in 15 years, with a 0.25% increase to 5.25%. However, BoE policymakers seem to be divided over the rate hike, with the majority supporting the recent move, some backing a 0.50% rate hike, while one voting member opposed any rate hike.

Post the BoE Interest Rate Decision, Governor Andrew Bailey ruled out the possibility of a 50 basis point rate increase at the press conference. He also projected softer inflation rates and expressed hope to maintain the expected path without causing a recession, adding, “We will have to see.” Governor Bailey also acknowledged that the “Projection for economic activity has weakened since May.”

Looking ahead, the immediate directions will be determined by the Germany’s Factory Orders and Eurozone Retail Sales figures for June. Subsequently, the final readings of the UK’s S&P Global Construction PMI for August and a speech from BoE Chief Economist Huw Pill will likely provide entertainment for the EUR/GBP traders.

Technical analysis

Despite multiple failed attempts to sustain a daily closing beyond the 100-day Exponential Moving Average (EMA), currently around 0.8655, EUR/GBP bears remain optimistic. However, the pullback moves require validation from the 21-day EMA level of around 0.8590.

For South African investors and forex traders, these dynamics between major currency pairs like EUR/GBP can impact the local currency, the Rand (ZAR). Market fluctuations driven by global macroeconomic indicators and central bank decisions can cause ripples across emerging market currencies. As such, these developments in the EUR/GBP pair deserve close attention from South African market participants.

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