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EUR/GBP struggles to gain traction, holds steady around 0.8830 area ahead of UK budget

EUR/GBP struggles to gain traction, holds steady around 0.8830 area ahead of UK budget

  • EUR/GBP edges higher for the second straight day, though lacks follow-through buying.
  • Bets that the BoE could pause its rate-hiking cycle undermine the GBP and lend support.
  • Investors now look to the UK budget for some impetus ahead of the ECB on Thursday.

The EUR/GBP cross edges higher for the second straight day on Wednesday and looks to build on the previous day’s goodish rebound from the 0.8775 area, or over a one-week low. The cross trades with a mild positive bias through the early European session and is currently placed around the 0.8830 region, up less than 0.05% for the day.

Expectations that the Bank of England (BoE) could pause its rate-hiking cycle next week turns out to be a key factor behind the British Pound’s relative underperformance, which, in turn, lends support to the EUR/GBP cross. The markets are now pricing in around a lower 40% chance that the BoE will leave interest rates unchanged on March 23 amid signs that UK wages are cooling. The bets fell after the UK Office for National Statistics reported on Tuesday that annual growth in average total pay — including bonuses — slowed to 5.7% during the three months to January from 6% the previous month. Excluding bonuses, pay growth eased from 6.7% to 6.5%.

In contrast, several European Central Bank (ECB) policymakers recently backed the case for additional jumbo rate hikes beyond the March meeting. This, in turn, continues to underpin the shared currency and further seems to act as a tailwind for the EUR/GBP cross. Bullish traders, however, seem reluctant to place aggressive bets and prefer to wait on the sidelines ahead of the crucial ECB monetary policy meeting on Thursday. Heading into the key central bank event risk, the UK government’s new budget is due to be presented on Wednesday, which might influence the Sterling Pound and provide some impetus to the cross in the absence of any relevant macro data.

Nevertheless, the abovementioned fundamental backdrop supports prospects for some meaningful upside for the EUR/GBP cross. Even from a technical perspective, the overnight recovery reaffirmed strong support near the 100-day Simple Moving Average (SMA) at 0.8770, which should now act as a pivotal point and a strong near-term base for spot prices. A convincing break below, however, will negate the positive outlook and shift the bias in favour of bearish traders, paving the way for an extension of the recent pullback down to a possible target at around 0.8680 where the 200-day SMA and a major trendline align.

Technical levels to watch

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David Carroll

David Carroll is a Journalist at Flaunt Weekly.

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