EUR/GBP consolidates its recent slide to the lowest level since August 2022 touched this Monday.
Bets for more aggressive BoE tightening underpin the GBP and exerts some pressure on the cross.
The downside seems limited as traders keenly await the UK inflation and the BoE meeting this week.
The EUR/GBP cross enters a bearish consolidation phase and oscillates in a narrow trading band around the 0.8525-0.8530 area, just above its lowest level since August 2022 touched this Monday.
The British Pound (GBP) continues with its relative outperformance on the back of expectations that the Bank of England (BoE) will keep raising interest rates, which, in turn, is seen as a key factor weighing on the EUR/GBP cross. In fact, the BoE is widely expected to hike the benchmark rates by 25 bps on Thursday, to 4.75% or the highest since April 2008. Moreover, the markets are pricing in the possibility of a bigger, 50 bps lift-off. The bets were reaffirmed by the upbeat UK jobs data released last week, which came in to show a near-record wage growth and a lower unemployment rate.
The downside for the EUR/GBP cross, however, seems cushioned in the wake of the European Central Bank’s (ECB) hawkish outlook, signalling that additional rate hikes will be needed to bring Eurozone inflation to its medium-term target of 2%. It is worth recalling that the ECB hiked interest rates for the eighth straight time last Wednesday, by 25 bps to 3.5% or the highest in 22 years. The inflation projection for this year was raised to 5.1% from 4.6%, suggesting that the central bank is still not done with its policy tightening and is seen lending some support to the shared currency.
Traders might also prefer to wait on the sidelines ahead of Wednesday’s release of the latest consumer inflation figures from the UK. This will be followed by the highly-anticipated BoE decision on Thursday, which will play a key role in influencing the Sterling and provide some meaningful impetus to the EUR/GBP cross. Apart from this, traders this week will take cues from the flash PMI prints from the Eurozone and the UK, due on Friday. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for spot prices is to the downside.
Technical levels to watch