- EUR/GBP drifts lower and snaps a four-day winning streak to a multi-month peak.
- The upbeat German Industrial Production data lends support and helps limit losses.
- This week’s breakout through the crucial 200-day SMA hurdle favors bullish traders.
The EUR/GBP cross comes under some selling pressure on Wednesday and erodes a part of the previous day's strong move up back closer to a three-month peak touched earlier this week. Spot prices, however, recover a few pips from the daily low and trade with modest intraday losses, around the 0.8600 mark during the early part of the European session.
The shared currency attracted some buyers following the release of German Industrial Production data, which showed that the output in the Eurozone’s top economy increased by 1.4% MoM. The reading was better than the expected increase of 1.0% and a 2.5% drop registered in May, which, in turn, acts as a tailwind for the EUR/GBP cross. The upside, however, remains capped in the wake of the European Central Bank's (ECB) downbeat view of the Eurozone's economic prospects and overbought conditions on the daily chart.
Apart from this, a modest technical bounce in the British Pound (GBP) contributes to capping the EUR/GBP cross, which, for now, seems to have stalled a strong rally witnessed over the past four days. Meanwhile, any meaningful corrective decline still seems elusive amid the Bank of England's (BoE) first interest rate cut in more than four years, from a 16-year high to 5.0% last Thursday. This, in turn, makes it prudent to wait for strong follow-through selling before confirming that spot prices have topped out in the near term.
There isn't any relevant market-moving economic data due for release, either from the UK or Eurozone, for the rest of the week. Hence, the focus shifts to the monthly jobs report and the latest consumer inflation figures from the UK, due next Tuesday and Wednesday, respectively. Apart from this, the monthly UK GDP print on Thursday should provide some meaningful impetus to the EUR/GBP cross. From a technical perspective, Monday's breakout through the very important 200-day Simple Moving Average (SMA) favors bullish traders.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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