- EUR/GBP rebounded from support at 0.8350 area and is trading around 0.8375 amid Euro outperformance as geopolitical tensions ease.
- The EUR has recently underperformed on fears that a Russia-Ukraine war and associated sanctions could hurt the eurozone dependent on Russian gas imports.
- Strong wage growth in the UK is helping to keep gains capped below 0.8400, with analysts also keeping an eye on Wednesday’s UK CPI.
The EUR/GBP rallied from support in the 0.8350 area to trade near 0.8375, up around 0.3% on the day, amid an overall outperformance of the Euro as Russia-Ukraine tensions appear to ease. Reports on Tuesday suggested that Russian troops have been returning to their bases from attack positions, a move that financial market participants have interpreted as lowering the risk of imminent war. That has subsequently eased concerns about the eurozone’s economic vulnerability to a Ukraine-Russia conflict and related sanctions given the bloc’s reliance on Russian gas imports.
The pair continues to trade substantially below the euro’s underperforming levels related to last Friday’s geopolitical tension above 0.8400 and is likely to struggle to recover north of the large figure in the absence of further signs of de-escalation. Another factor contributing to the likelihood that EUR/GBP gains will, for now, remain capped was Tuesday’s UK labor market data, which economists say strengthens the case for further tightening by the BoE in the next few months. The UK jobless rate was 4.1% as expected in December, unchanged from November levels, although wage growth metrics were substantially better than forecast.
“December’s pick-up in wage growth will keep pressure on the MPC to raise the bank rate again at next month’s meeting,” analysts at Pantheon Macroeconomics said. With the latest comments from ECB officials, including President Christine Lagarde on Monday, seeking to counter expectations of an overly hasty policy tightening by the ECB, the divergence between the BoE and the ECB could weigh on EUR/GBP. this week. Analysts pointed to Wednesday’s release of UK consumer price inflation data for January as another event risk to watch that could add more to this narrative.
Additional technical levels
Source: Fx Street
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