- EUR/GBP edged lower on Friday and eroded a part of the overnight post-ECB gains.
- BoE rate hike expectations turned out to be a key factor that underpinned the GBP.
- Upbeat Eurozone GDP/hotter CPI extended support to the euro and limited losses.
The EUR/GBP cross remained depressed through the first half of the European session and was last seen hovering near daily lows, just above mid-0.8400s.
The cross struggled to capitalize on the previous day’s post-ECB strong move up to two-week tops, instead met with some supply on the last trading day of the week. The British pound’s relative outperformance comes amid firming market expectations for an imminent rate hike by the Bank of England at the upcoming meeting. The speculations were reinforced by the UK finance minister Rishi Sunak’s upbeat economic assessment during the annual budget presentation on Wednesday.
On the other hand, the shared currency was pressured by dovish sounding remarks from ECB President Christine during the post-meeting press conference on Thursday. Lagarde acknowledged stronger-than-expected inflationary pressures but downplayed the need to hike interest rates. This, however, failed to convince investors that bets for an earlier policy tightening were misplaced amid the continuous rise in the Eurozone consumer prices for the fourth straight month in October.
According to the flash estimates released by Eurostat this Friday, the headline Eurozone CPI jumped to a 13-year high level of 4.1% for the current month. This marked a notable acceleration from 3.4% recorded in September and was also higher than the rise to 3.7% anticipated. Adding to this, the core reading exceeded the ECB’s 2% target. This, along with a better-than-expected Eurozone GDP print for the third quarter, overshadowed a slight disappointment from German growth figures.
This, in turn, should act as a tailwind for the shared currency. Apart from this, Brexit jitters might hold the GBP bulls from placing aggressive bets and help limit any meaningful decline for the EUR/GBP cross. Investors remain worried about tensions between the UK and France over the post-Brexit fishing rights and a fresh row over the Northern Ireland protocol.
Even from a technical perspective, the overnight move beyond the top boundary of over one-week-old trading range suggests that the EUR/GBP cross might have bottomed out and favours bullish traders. Hence, any subsequent decline might still be seen as a buying opportunity and remain limited. Nevertheless, the stage seems set for a further near-term appreciating move, which should allow bulls to aim back to reclaim the key 0.8500 psychological mark.