EUR/GBP sits and waits for the ECB’s hawkish pause

By:
on Sep 14, 2023
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  • The EUR/GBP exchange rate was stuck in a range ahead of the ECB decision.
  • Analysts have mixed feelings about what the ECB will do.
  • Most of them expect a hawkish pause by Christine Lagarde.

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The EUR/GBP exchange rate remained in a tight range as investors reflected on the relatively weak UK GDP numbers and repositioned for the upcoming interest rate decision by the European Central Bank (ECB). The pair was trading at 0.8600, where it has been stuck since June. 

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UK GDP and ECB decision

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The EUR/GBP pair was in a tight range after the UK published weak GDP numbers, which I covered here. According to the Office of National Statistics (ONS), the economy contracted by 0.5% in July. Industrial production and construction output metrics also dropped during the month. 

Therefore, there is a high likelihood that the Bank of England (BoE) will decide to pause its rate hikes when it meets next week. Besides, other economic numbers have been a bit weak lately. For example, a report published on Thursday showed that real estate agents were the gloomiest in 14 years. 

Further rate hikes by the Bank of England (BoE) will likely lead to more economic weakness in the coming months. 

The next key EUR/GBP news to watch will be the upcoming interest rate decision by the European Central Bank (ECB). Analysts are unclear about what to expect in this meeting.

Some market watchers believe that the ECB will decide to hike interest rates since inflation remains above 5%. On the other hand, some analysts and market watchers expect the bank will leave rates at 3.75%.

The latter analysts argue that more rate hikes will lead to more challenges for the European economy. For example, recent data shows that liquidity and money supply in the region has dropped in the past few months. The impact of this is that banks are limiting the loans they offer.

Further, there are signs that the economy will sink into a recession. Germany, the biggest economy in the region has already contracted in the past two straight quarters.

EUR/GBP technical analysis

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EUR/GBP

The EUR to GBP exchange rate has been in a consolidation phase in the past few weeks. On the daily chart, we see that the pair found a strong support at 0.8495, the lowest level in July and August. It is also consolidating at the 25-day and 50-day moving averages.

The Relative Strength Index (RSI) has moved slightly above the neutral point at 50 while the Average True Range (ATR) has retreated. Therefore, I suspect that the pair will remain in this range after the ECB decision. The key support and resistance prices to watch will be at 08495 and 0.8700.

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