The EUR/GBP pair continues its bullish momentum, extending its winning streak for a fifth consecutive day on Tuesday. The Euro (EUR) has outperformed the Pound Sterling (GBP), which has struggled across the board due to concerns surrounding the United Kingdom’s (UK) economic outlook, particularly in light of rising yields on UK government gilts.
The 30-year yields on UK gilts have surged to 5.47%, marking the highest level in over 26 years. This sharp rise in borrowing costs reflects growing uncertainty about trade policies under President-elect Donald Trump, along with the UK’s heavy reliance on foreign financing. As borrowing costs increase, investors expect that Chancellor of the Exchequer Rachel Reeves may be forced to deviate from her fiscal rules, particularly after vowing to rely on foreign borrowing to fund investment rather than day-to-day spending.
Despite challenges from the European Central Bank’s (ECB) expected continued interest rate cuts in 2024, the Euro remains strong against its major peers on Tuesday. The ECB, which reduced its Deposit Facility rate by 100 basis points to 3% in 2024, is anticipated to cut further in the middle of the year.
The EUR/GBP pair strengthened after breaking above the December 27 high of 0.8329, which now acts as support. A fresh bullish crossover between the 20-day and 50-day Exponential Moving Averages (EMAs) near 0.8330 signals a robust uptrend. The 14-day Relative Strength Index (RSI) has risen sharply to nearly 70, further indicating strong bullish momentum.
Looking ahead, the EUR/GBP pair could move towards the August 26 high of 0.8475 and the psychological resistance at 0.8500, following a break above the October high of 0.8448.
On the downside, if the pair falls below the January 14 low of 0.8384, it could slow the upward move, potentially dragging the cross toward the October 24 high of 0.8350, followed by the December 27 high of 0.8329.
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