The European Union’s currency, the Euro (EUR), faced a second consecutive day of decline against the British Pound Sterling (GBP) in response to the Bank of England’s (BoE) decision to raise interest rates by 50 basis points (bps) during their recent monetary policy meeting. This unexpected move by the BoE bolstered the strength of the GBP, causing it to gain ground against the EUR. The repercussions of this decision were felt beyond the borders of the United Kingdom, with South Africa’s financial markets also experiencing the effects.
Furthermore, concerns of a potential economic downturn were fueled by a slowdown in business activity not only in the Eurozone (EU) but also in the UK. This deceleration amplified fears of a recession, casting a shadow over the performance of the EUR/GBP exchange rate.
Despite these recessionary concerns, the UK’s retail sales figures provided a glimmer of hope for the GBP, exacerbating the downward trend in the EUR/GBP pair. The upbeat retail sales data contributed to the strengthening of the Pound and further weighed down the Euro. As of the time of writing, the EUR/GBP is trading at 0.8566 after hitting a high of 0.8607.
Technical analysis suggests that the EUR/GBP is poised to extend its downtrend given the current fundamental backdrop. In fact, the pair recently dropped below the 20-day Exponential Moving Average (EMA) at 0.8593, which is considered a bearish signal. This breach of the EMA accelerated the decline of the cross, reaching daily lows at around 0.8535 before stabilizing at its current exchange rate.
For sellers to solidify the ongoing downtrend, it is crucial for the EUR/GBP to close below the June 22 daily low of 0.8569. Such a development would put support levels at risk, including the current two-day low of 0.8535, followed by the weekly low of 0.85255. Subsequently, sellers could target the year-to-date (YTD) low of 0.8518.
On the other hand, buyers of the EUR/GBP will remain hopeful if the pair manages to surpass the 0.8600 figure. However, to achieve this, they must first conquer the 20-day EMA. Potential upside risks above the 0.86 mark are evident at the June 22 high of 0.8639, and if buyers continue their momentum, they may set their sights on challenging the 50-day EMA as the next resistance level at 0.8657.
As South Africa is connected to the global financial markets, the performance of major currency pairs like the EUR/GBP can have an impact on the country’s economy. Traders, investors, and analysts in South Africa are closely monitoring the developments surrounding the EUR/GBP exchange rate, as it influences foreign exchange markets and can potentially affect trade and investment flows between South Africa, the EU, and the UK.