Today’s ECB rate meeting has sent the Euro lower vs the British pound, and there is an increased chance that we see an even lower EURGBP in the weeks ahead.

ECB turns dovish

In their latest interest rate meeting, the ECB announced that, like the Federal Reserve, the ECB would allow inflation to overshoot its 2% target. The reason for this is that inflation had remained below the 2% percent target for almost ten years, as the European central bank had always started to increase interest rates well before inflation reached 2%.

As the ECB consistently increased borrowing costs to keep inflation in check, it is also suspected to have kept economic growth trapped at low levels. The change in strategy now means that inflation will be allowed to be above the 2% mark, which could help economic growth to pick up.

What does it mean for EUR/GBP?

For the Euro, the latest news is bearish as it means that the ECB will further delay interest rate hikes and the removal of quantitative easing. The latter is set to end in March 2022.

UK annual inflation is at 2.5%, whilst core inflation is at 2.3%. Euro-area annual inflation is at 1.9%, whilst core inflation is at 0.9%. The latter has never been too important for the ECB in the past, but it is still likely a critical factor that they take into consideration. If it was just due to core inflation, then we are looking at years of low interest rates.

In the UK, the Bank of England is also not ready to increase interest rates, but the higher headline and core inflation are making it likely that the Bank of England will act first. The fundamental outlook is therefore suggesting EURGBP might trade lower in the months ahead.

EUR/GBP technical outlook

EURGBP remains near its 2021 low of 0.8473, and for now, the price would need to trade below the 2021 low for the bearish trend to resume. Until this happens, the price will likely remain trapped between 2021 low and April 2021 high of 0.8721, with a break to the latter level possibility opening the pathway for a move to 0.90.

If the price trades below the 2021 low, the exchange rate might reach the 2019 and 2020 low of 0.8271.

EURGBP Weekly Chart

Chart

High-risk investment warning: Trading Foreign Exchange (Forex) and Contracts for Differences (CFDs) is highly speculative, carries a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin. Any opinions, news, research, analysis, prices or other information contained in this presentation is provided as general market commentary and does not constitute investment advice.

Feed news

Latest Forex Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD: Portrays bearish set-up on D1 below 1.1900

EUR/USD edges lower around 1.1870 amid a quiet start to the week’s Asian session trading on Monday. The major currency pair snapped a four-day uptrend on Friday, posting the bearish spinning top candlestick.

EUR/USD News

GBP/USD: The fundamental background backs another leg higher

The GBP/USD pair settled at 1.3900, its best weekly close since early May. The pair eased on Friday as month-end flows helped the greenback to recover some of the ground lost post-Fed’s dovish statement. Cable could fall once below 1.3865, buyers could surge on approaches to 1.3800.

GBP/USD News

Gold bulls hesitate as focus shift to NFP

After closing the previous week in the negative territory, gold stayed on the back foot on Monday and dropped below $1,800. However, the subdued market action ahead of key macroeconomic events allowed the precious metal to stay in a consolidation phase on Tuesday.

Gold News

Shiba gets listed on eToro as demand for SHIB skyrockets

Leading investment platform eToro has been adding cryptocurrency assets on popular demand from users. The Dogecoin killer recently amassed 600,000 holders despite range-bound price action. 

Read more

Challenging week ahead

Three macro considerations are shaping the investment climate: the evolution of the virus and the response, the timeframe of the Fed's tapering, and China's broad regulatory crackdown. Beijing's new policy initiatives are broader and quicker than generally anticipated.

Read more

Majors

Cryptocurrencies

Signatures