EUR/GBP weakens after hawkish Bank of England comments
Hawkish commentary from two BoE members in the wake of the UK CPI reading highlights the potential for GBP strength moving forward.
BoE tone begins to shift after inflation rise
This week has seen UK inflation rise into the highest level since late 2018, with the headline consumer price inflation (CPI) figure hitting 2.5% in June.
That is just the latest step in a rapid ramp-up in prices which has taken CPI from 0.4% to 2.5% in just four months.
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It appears that this rise has done enough to shift the resolve of some Bank of England (BoE) members, with Sir Dave Ramsden and Michael Saunders both bringing a more hawkish stance than had previously been transmitted by the Monetary Policy Committee (MPC). Initially, Ramsden stated that the conditions for tightening could be met earlier than previously expected, with the Deputy Governor looking for CPI to top out at 4%. That would represent the highest level since 2011.
While those comments initially portrayed Ramsden as an outlier, we have since seen Saunders paint a similarly cautious approach. In particular, Saunders expressed concern that rising inflation could result in a need to end the asset purchase programme in the coming month or two. This is despite the fact that it would mean the bank had failed to enact a full £150 billion purchase programme as previously laid out.
While many will cast doubt over the notion we could see the BoE move in the near future, this certainly does represent a shift in tone akin to the conversations taking place at the Fed.
EUR/GBP heads back towards key support
The sterling strength seen in the wake of these comments has helped drive EUR/GBP back down towards the 0.8472 lows established in April.
From a wider perspective we can see that a break below that level would signal a potential move back down towards the 0.8282 lows.
From an intraday perspective, the four-hour chart shows how the latest rebound fell short at the 100-simple moving average (SMA) moving average.
With the wider trend of lower highs continuing to play out, it looks likely we will see further weakness from here on in. As such, a bearish view holds until price breaks through the prior swing low (currently 0.8618).
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