EUR/GBP Plummets to 9-Month Lows, BoE Rate Hike Looms

  • The EUR/GBP exchange rate has dropped to its lowest level since August 2022, breaking below the support area of 0.8540 and currently trading around 0.8530.
  • The downward trend resumed after a brief rebound following the European Central Bank (ECB) meeting, despite President Lagarde’s hawkish tone and hints of another rate hike in July.
  • The upcoming Bank of England (BoE) decision is expected to include a 25 basis points hike, with the belief that the BoE will continue raising rates even after the ECB and the US Federal Reserve conclude their tightening cycles, supporting the strength of the British Pound.

The EUR/GBP exchange rate has experienced a significant decline, falling below the key support level of 0.8540 and currently trading around 0.8530, its lowest level since August 2022. The downward trend has resumed following a brief pause and a minor rebound after the European Central Bank (ECB) meeting.

During the ECB meeting held on Thursday, as anticipated, the bank decided to raise interest rates by 25 basis points. Despite the hawkish tone from ECB President Lagarde, who hinted at another rate hike in July, the EUR/GBP only saw a modest increase approaching 0.8600 before weakening again.

Looking ahead, the Bank of England (BoE) is set to announce its decision next Thursday, and a 25 basis points hike is widely expected. Analysts at Rabobank suggest that while the BoE was one of the first major central banks to initiate rate hikes, the persistently high inflation in the UK indicates that it may be one of the last to complete its tightening cycle.

The expectation that the BoE will continue raising rates even after the ECB and the US Federal Reserve conclude their tightening cycles has been bolstering the strength of the British Pound. This week, the Sterling has outperformed, driven by these expectations and positive UK employment data.

From a technical perspective, the EUR/GBP exhibits a clear bearish bias, and if it consolidates below 0.8530, it is likely to face further losses. The next key levels to monitor are around 0.8500, followed by support at 0.8480. However, a recovery above 0.8550 would alleviate some of the bearish pressure.

In order to improve the short-term outlook, the Euro would need to surpass the resistance level at 0.8610, which coincides with a horizontal resistance level and the 20-day Simple Moving Average. A breakout above this level would signal increased strength among the bulls and could potentially push the EUR/GBP cross higher.

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