Today our focus will remain on Europe as we take a look at the EUR/GBP currency pair. Over the past week the exchange rate of this pair has steadily decreased and currently sits at around 0.8507, the lowest in nine days.
Right now the British pound sterling seems to have a more bullish bias than the euro. The reason for this is that investors have higher hopes of a monetary policy tightening in the United Kingdom than in the European Union. This week’s reports indicated that inflation in the UK is climbing higher than expected, which is going to put pressure on the Bank of England to take a more hawkish approach to policy sooner rather than later. In fact, the BoE held its last meeting of 2021 today. With a surprise vote of 8 out of 9 members in favor of hiking the rates, the Bank of England decided to increase the interest rate to 0.25% (up from 0.1%). The markets had expected a far more dovish outcome of the meeting, so this exciting turn of events will certainly boost the British pound. This will remain the dominant factor influencing the currency for now, with fears over new Omicron-related lockdowns retreating in the background for the time being.
Speaking of monetary policy meetings, the European Central Bank is also holding one today. However, inflation in the eurozone has so far been moving in line with the forecasts for the most part, and the energy crisis is likely a big contributor to higher prices, rather than real economic growth. Thus, we cannot hope for any rate hikes in the eurozone anytime soon, perhaps not even next year. The only hawkishness investors will be looking for in this meeting is whether the ECB announces a new stimulus program or not. But even if the central bank promises the end of bond purchases in March, the Bank of England’s rate hike today will overshadow that and the euro will lose positions against the pound for now.
In terms of the daily chart, today we have a pivot point for the pair located at 0.8507, with the pair currently trading below it. The daily support levels lie at 0.8562 (overcome) and 0.8439. The daily resistances are at 0.8529 and 0.8552. The indicators of technical analysis agree in strongly recommending a sell position today.
