EUR/GBP flatlines in 0.8320s, just above multi-year lows as next week’s BoE/ECB meetings eyed

EUR/GBP trades flat on the day in the 0.8320s, just above multi-year lows just above the key 0.8300 level and late-2019/early-2020 lows around 0.8280. The pair has ignored the latest mixed Eurozone GDP numbers, which saw France and Spain both post better than expected QoQ Q4 growth rates of 0.7% and 2.0% respectively, whilst Germany saw a larger than expected QoQ contraction of 0.7%. GDP data aside, the Eurozone data slate has been heavy, with the latest European Commission Business and Consumer sentiment survey coming in a little weaker than expected in January and at its lowest since last April.

Elsewhere, the YoY rate of M3 money supply growth was a tad stronger than expected, whilst Import price growth in Germany slowed significantly more than expected in December. As with the GDP data, other releases were also ignored (hence why EUR/GBP is flat), as FX markets see some pre-weekend calm after a volatile week. On which note, EUR/GBP currently trades roughly 0.5% lower on the week and is currently about 1.2% below Monday’s highs in the 0.8420s, the pair reversing lower as FX market focus switched from risk-off to central bank divergence.

On which note, central banks will be a key theme for EUR/GBP traders next week with the BoE and ECB both announcing policy decisions next Thursday. No policy or guidance changes are expected from the latter, but the BoE is now near-unanimously expected to hike rates by 25bps to 0.5% and kick off a discussion on (or even kickstart) outright quantitative tightening (QT) that is likely to begin with ending reinvestments. Recall that the BoE said last year that when rates reached 0.5%, QT could begin. Many FX strategists expect this divergence to continue to drive EUR/GBP lower in the short-term and are targetting the multi-year lows in the 0.8280 area.

Risk appetite has been choppy and shakey this week and another sharp downturn, perhaps if strong US data triggers further hawkish Fed bets, presents some upside risk to the pair. Other things for investors to watch will be flash Eurozone January Consumer Price Inflation data in the early part of the week and German Factory Orders data on Friday.