EUR/GBP climbs back above 0.8650 after strong Eurozone inflation data

• EUR/GBP achieves strong positive traction on Friday and surges to a weekly high.
• Stronger Eurozone CPI figures reaffirm ECB rate hike expectations and boost Euro.
• Bank of England caution and Brexit woes weigh on sterling and contribute to the pair’s strong move higher.

The crossing EUR/GBP it has extended the previous day’s nice bounce from 0.8550 to a near two-week low and gained strong positive traction on the last day of the week. Buying interest has picked up during the first part of the European session and has propelled the pair to the 0.8665-0.8670 zonereaching a new weekly high.

The relative performance of the common currency comes amid a clear signal from the European Central Bank that the rate hike cycle would start in June. Furthermore, a 50 basis point hike in September is considered almost a given, and expectations were bolstered by stronger eurozone consumer inflation figurespublished earlier this Friday.

According to the preliminary estimate published by Eurostat, the annualized IPCA Harmonized Index of Consumer Prices for the euro zone accelerated to 8.6% in June. This figure far exceeded market expectations, which were expecting an increase of 8.4% from the 8.1% recorded in May, which in turn was seen as a key factor providing fresh impetus to the EUR/GBP cross.

On the other hand, sterling came under pressure on expectations that the Bank of England will take a gradual approach toward raising interest rates amid growing recession fears. Furthermore, concern about new tensions between the United Kingdom and the EU regarding the protocol on Northern Ireland of the Brexit agreement should act as a headwind for the British pound.

The fundamental background supports the prospects of a further short-term move higher for the EUR/GBP cross. Therefore, a continuation towards the recovery of the 0.8700 level is possible, on the way to the yearly high in the 0.8720 region.

EUR/GBP technical levels