EUR/GBP forecast ahead of a giant BoE interest rate hike

on Aug 4, 2022
  • The EUR/GBP price has fallen by 4% from its highest point in June.
  • Focus shifts to the upcoming BoE interest rate decision.
  • The bank will hike interest rates by 0.50% to fight inflation.

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The EUR/GBP price moved sideways on Thursday morning as investors focused on the latest Germany factory orders and the upcoming Bank of England (BoE) interest rate decision. The pair was trading at 0.8365, where it has been in the past few days. This price is about 4% below the highest level in June this year.

BoE interest rate decision

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The EUR to GBP exchange rate has been in a relatively narrow range in the past few days as focus shifted to the BoE decision. The pair has also struggled as investors focus on the ongoing natural gas crisis in the European Union.

The BoE, which is led by Andrew Bailey, will conclude its two-day meeting on Thursday. Based on his previous statements, analysts believe that the bank will deliver its biggest rate hike in over 27 years. Economists see it rising rates by 0.50% and bring the headline rate to 1.75%.

The decision comes at a difficult time for the UK economy. First, the IMF has warned that the country will see the slowest recovery in the G7. Recent data point to this weakening. For example, retail sales and consumer confidence have dropped sharply in the past few months. This is notable since consumer spending is an important part of the UK economy.

Second, like in other countries, inflation has jumped sharply in the UK. The most recent data showed that the country’s inflation surged to 9.4%, the highest level in more than three decades. At the same time, there are signs that the crucial housing sector is stabilising while international trade has slowed because of Brexit.

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On a positive side, the BoE meets at a time when the labor market is still strong. Recent data showed that the unemployment rate remained at 3.7%, meaning that the country is in full employment. Therefore, the BoE will likely deliver a dovish rate hike.

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EUR/GBP forecast

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The four-hour chart shows that the EUR to GBP rate has been in a strong downward trend in the past few days. The pair remains below the important support levels at 0.8392 and 0.8400, which were the lowest levels in May and June. The forex pair has dropped below the 25-day and 50-day moving averages. The MACD has formed a bullish divergence pattern.

Therefore, the pair will likely continue falling after the BoE decision. If this happens, the next key support will be at 0.8300.


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