The EUR/GBP cross is currently in a period of bearish consolidation, fluctuating within a narrow range around the 0.8525-0.8530 area. This level is just above its lowest point since August 2022, as observed earlier this week.
Driven by expectations of interest rate hikes by the Bank of England (BoE), the British Pound (GBP) continues to outperform, putting pressure on the EUR/GBP cross.
The market widely anticipates a 25 basis points increase in benchmark rates by the BoE on Thursday, potentially reaching 4.75%, the highest level since April 2008. There are even speculations of a larger increase of 50 basis points.
Last week’s positive UK jobs data, indicating near-record wage growth and a decrease in unemployment, further supported these expectations.
Despite the downward pressure, the EUR/GBP cross finds some support due to the hawkish outlook of the European Central Bank (ECB). The ECB’s indication of the need for additional rate hikes to achieve its medium-term inflation target of 2% has contributed to the resilience of the shared currency.
Notably, the ECB recently raised interest rates for the eighth consecutive time, elevating them to 3.5%, the highest level in 22 years. The inflation projection for this year was also revised upward to 5.1% from 4.6%, suggesting that the central bank is still committed to its tightening policy.
Traders may choose to remain on the sidelines in anticipation of key events. Firstly, the release of the latest consumer inflation figures from the UK on Wednesday, followed by the highly-anticipated BoE decision on Thursday, will significantly impact the trajectory of the Sterling and provide substantial momentum to the EUR/GBP cross.
Additionally, flash PMI data from the Eurozone and the UK, scheduled for Friday, will influence trading sentiments. Nevertheless, considering the fundamental factors mentioned above, the prevailing trend for spot prices appears to be on the downside.
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