EUR/GBP rises on UK stagflation scenario looming
- EUR/GBP reaches a weekly peak, trading at 0.8711, buoyed by concerns over the UK's economic stagnation and potential stagflation.
- UK GDP forecasts indicate a possible contraction in Q3, with expectations of a -0.1% decrease in QoQ, pressuring the Pound.
- Bank of England's mixed signals, with Governor Bailey's cautious stance on inflation, contrast with Huw Pill's rate cut discussions, adding to GBP volatility.
EUR/GBP gathers traction, extending its gains to three consecutive days, hitting a weekly high of 0.8713, as the economic outlook for the United Kingdom (UK) looks uncertain as stagnation talks gather momentum. The cross-currency pair trades at 0.8711, up a decent 0.14%.
Euro gains against the Pound amid a challenging economic outlook for the UK, with the Eurozone also facing its own inflationary pressures
Recent economic data from the UK suggests the economy will contract in the third quarter. Forecasts for the release of Gross Domestic Product (GDP)¸ show economists awaiting a -0.1% QoQ contraction, which, added to elevated prices, suggests the economy is at the brisk of stagflation. That, along with comments from the Bank of England (BoE) Governor Andrew Bailey indicating inflation is slowing down, weakened the Pound Sterling (GBP). Nevertheless, contrary to Huw Pill's comments on Tuesday, he said that “it´s too early to be talking about cutting rates.”
On the Eurozone (EU) front, inflation in Germany remains stickier at 3.8% YoY in October, unchanged compared to September’s data. EU Retail Sales shrank -0.3% MoM in September and 2.9% over the last twelve months.
Aside from this, comments from European Central Bank (ECB) officials show mixed readings after Martin Kazaks said he did not rule out further tightening, echoing some of Gabriel Makhlouf's comments that it´s premature to talk about rate cuts. On the dovish side, ECB’s Pierre Wunsch suggested the economy may be entering a stagflation phase.
EUR/GBP Price Analysis: Technical outlook
Given the fundamental backdrop, the EUR/GBP uptrend remains intact, with the pair breaking solid resistance at the 200-day moving average (DMA) at 0.8688, which exacerbated a rally above the 0.8700 figure. Additional upside risks are seen above the October 31 daily high at 0.8754, which could exacerbate an advance to 0.8800. On the other hand, sellers must need to drag spot prices below 0.8700, so they can remain hopeful of reclaiming the 200-DMA.
Author
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
