The EUR/GBP pair edged higher to around 0.8320 during early European trading on Monday, driven by diverging monetary policy expectations for the European Central Bank (ECB) and the Bank of England (BoE). However, the Euro’s (EUR) upside remains limited amid rising speculation of aggressive ECB rate cuts to address the eurozone’s slowing economy.
Key Drivers for EUR/GBP Movement
ECB Rate Cut Expectations
Eurozone PMI Weakness: Friday’s downbeat Purchasing Managers Index (PMI) data reinforced concerns over the eurozone’s economic health. Analysts now anticipate a potential 50-basis-point rate cut in December, an increase from earlier projections of smaller reductions.
Market Strategist Insights: Matthew Landon of JP Morgan suggested the PMI data could make a half-point cut a realistic option for the ECB next month. This sentiment was echoed by Governing Council member Martins Kazaks, who advocated for rate reductions to counter economic weakness.
Impact on Euro: While the ECB’s dovish outlook weighs on the EUR, the cross still managed gains due to weak UK data.
GBP Under Pressure from Soft Retail and PMI Data
Retail Sales Slump: UK retail sales dropped 0.7% in October, far below the market expectation of a 0.3% decline. The figures also reflect a steep fall from September’s upwardly revised 0.1% growth.
PMI Contraction: Weak services and manufacturing activity, reflected in PMI data below the 50 threshold, heightened concerns about the UK economy. This fueled speculation that the BoE may hold rates steady or adopt a dovish stance in December.
BoE Speeches Awaited: Markets are watching statements from Monetary Policy Committee (MPC) members Clare Lombardelli, Swati Dhingra, and Huw Pill for clarity on the central bank’s direction.
Outlook for EUR/GBP
The EUR/GBP pair remains influenced by expectations of central bank policies and incoming economic data:
Support for EUR/GBP: If the ECB opts for smaller cuts than expected or if UK data continues to underwhelm, the EUR could maintain its strength against the GBP.
Downside Risks: Conversely, a stronger-than-expected BoE stance or positive UK data could weigh on the pair.
Technical Analysis
Immediate Resistance: 0.8350, a psychological level that aligns with previous highs.
Support Levels: 0.8280, followed by a stronger floor near 0.8250.
Indicators: The EUR/GBP remains above its 50-day moving average, signaling modest bullish momentum. However, the Relative Strength Index (RSI) near neutral suggests limited room for a sharp breakout without fresh catalysts.
The pair’s movement in the short term will hinge on central bank rhetoric and broader risk sentiment, with the ECB’s December meeting in sharp focus.
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