- EUR/GBP fades the spike to the 0.8975/80 band on Tuesday.
- EUR weakness forced the cross to give away part of recent gains.
- UK CPI rose 2.0% on a year to May, matching estimates.
The now better tone in the Sterling is forcing EUR/GBP to leave the area of daily highs and re-focus on the downside around the 0.8900 handle.
EUR/GBP weaker post-UK CPI
The European cross is struggling for direction on Wednesday following UK inflation figures for the month of May.
In fact, headline consumer prices rose at a monthly 0.2% and 2.0% over the last twelve months, in line with previous estimates. Further data saw the CPIH (prices including housing costs) rising 1.9% from a year earlier.
Tuesday’s sell-off in the single currency following the dovish tone from President Draghi at the ECB Forum in Sintra have motivated the cross to recede from fresh 5-month peaks in the vicinity of 0.8980.
From the UK political arena and following another vote to decide the leader of the Conservative Party and Theresa May’s successor, Dominic Raab was knocked out yesterday, while Boris Johnson came once again first of the ballot with 126 votes (from 114 votes).
Later in the week, the Bank of England is expected to leave the refi rate and its monetary policy stance unchanged at tomorrow’s meeting.
What to look for around GBP
Heightened uncertainty around the Brexit negotiations and May’s successor keeps the pressure on the Sterling intact for the time being. In the UK economy, the broader softness in fundamentals remains the name of the game, while inflation figures appear to be losing some traction. Additionally, the current steady stance from the Bank of England appears justified by below-target inflation figures, downbeat results from key economic fundamentals and somewhat slowing momentum in wage inflation pressures, all adding to speculations of a ‘no-hike’ this year despite some calls signalling a potential hike in November.
EUR/GBP key levels
The cross is retreating 0.06% at 0.8907 facing the next support at 0.8871 (low Jun.12) followed by 0.8867 (21-day SMA) and then 0.8826 (low Jun.5). On the other hand, a break above 0.8974 (monthly high Jun.17) would expose 0.9062 (low Jan.11) and finally 0.9092 (2019 high Jan.3).
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