EUR/GBP outlook: pair hits two-year low following UK inflation data
This morning’s UK inflation data cast doubt on hopes of a rate cut, strengthening the pound and pushing EUR/GBP to a new two-year low.
Euro hits two-year low vs sterling
The EUR/GBP exchange rate has fallen to its lowest level in two years, marking a significant shift in the currency pair's dynamics. This movement reflects the diverging economic outlooks and monetary policy expectations for the eurozone and the United Kingdom.
Sterling strength persists
The British pound has been on an upward trajectory, gaining strength against major currencies, including the euro. This surge in the pound's value comes in the aftermath of the latest UK consumer price index (CPI) data release, which has bolstered confidence in the UK economy.
UK inflation data insights
The recently published CPI figures showed that year-on-year (YoY) growth in UK inflation held steady at 2%. This stability in the inflation rate has caught the attention of investors and policymakers alike. The maintenance of inflation at the Bank of England's (BoE) target level suggests that the UK economy is demonstrating resilience and stability.
Implications for monetary policy
With inflation holding at 2%, the likelihood of the BoE implementing a rate cut in August has significantly decreased. This development has further supported the pound, as higher interest rates typically attract foreign capital, increasing demand for the currency.
European Central Bank outlook
Meanwhile, the European Central Bank (ECB) is anticipated to maintain its current monetary policy stance in its upcoming meeting. Despite this expectation of policy continuity, the euro remains under pressure in the currency markets.
Euro's ongoing challenges
The euro's weakness can be partly attributed to the ECB's recent interest rate cut. This monetary easing, aimed at stimulating the eurozone economy, has made the euro less attractive to investors seeking higher yields. The contrast between the ECB's dovish stance and the BoE's perceived hawkishness has contributed to the EUR/GBP pair's downward movement.
EUR/GBP price – technical analysis
EUR/GBP has continued its poor run, falling to a new two-year low today.
The pair has declined steadily all year; rallies in April and May hit a wave of selling, and the decreasing likelihood of a UK August rate cut has intensified the downward move.
August 2022’s lows around £0.835 come into view, and while a short-term rebound may develop if the ECB is more hawkish at tomorrow’s meeting, the overall bearish view is unchanged unless the price manages to clear the early July high at £0.85.
EUR/GBP chart
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