- EUR/GBP gained traction for the second day in a row and builds on overnight recovery from multi-year low.
- EU bond sale plan, encouraging macro data underpinned the euro and continued to support the positive move.
- Stagflation fears kept euro bulls from making aggressive bets and capped any further gains for the cross.
The crossing EUR/GBP it maintained its bid tone through the middle of the European session and was last seen hovering around the top of its intraday trading range, around the 0.8320 region.
The cross built on the strong overnight recovery move from 0.8200, or the lowest level since June 2016, and gained some tracking traction for the second day in a row on Tuesday. Reports indicated that the European Union (EU) could consider massive joint bond sales to finance energy and defense spending to deal with the fallout from the war between Russia and Ukraine. This, along with encouraging macro data, turned out to be a key factor behind the common currency’s relatively outperformance against its British counterpart.
Eurostat confirmed its previous estimates and reported that the region’s economy expanded by 0.3% quarterly and an annual rate of 4.6% during the October-December period. Adding to this, German industrial production beat expectations and rose 2.7% mom in January despite supply chain constraints. The previous month’s reading was also revised higher and showed a 1.1% rise in total industrial production compared to an estimated 0.3% decline. This, along with a modest pullback in the US dollar, benefited the euro.
That said, concerns about the worsening situation in Ukraine prevented the bulls from making aggressive bets and kept any further gains for the EUR/GBP cross at bay. Given its geographical proximity, the European economy would be the one that would suffer the most from the secondary effects of the crisis in Ukraine. Furthermore, the Russian invasion of Ukraine also appears to have derailed the European Central Bank’s plans to cut stimulus. Therefore, the market’s focus will remain glued to the new developments surrounding the Russia-Ukraine saga and the ECB meeting on Thursday.
Meanwhile, expectations that the Bank of England (BoE) will go ahead with raising rates at its March meeting could act as a tailwind for the British pound. This further warrants some caution before confirming that the EUR/GBP has bottomed out and is positioning for any further near-term appreciation moves.
Technical levels
Source: Fx Street
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