EUR/GBP falls after PPI figures and European PMIs

• EUR/GBP lost almost 0.42% so far this week and fell to 0.8535.
• July’s EU PPI was higher than expected, while August’s services PMI was weak.
• UK PMI figures for the same month were better than expected but remained in contraction territory.
• Hardening expectations remain for the BOE.

The pair EUR/GBP It fell back on Tuesday after Eurozone services PMIs for August disappointed investors. On the other hand, the British released higher than expected, which benefited the Pound, while the Bank of England (BoE) tightening bets remain firm and provide more cushion for the British Pound.

Investors assess economic activity data from Europe and the UK

The Producer Price Index (IPP) exceeded expectations in July. The figure stood at -0.5%, above the expected decline of -0.6 and above the previous -0.4%. On the other hand, the PMI for services in the EU, produced by S&P Global and the commercial bank of Hamburg (HCOB), disappointed the consensus in August by standing at 47.9 points, below the 48.3 expected and the previous 48.3. German surveys were in line with expectations, with the services index holding at 47.3.

In reaction, expectations of a tightening from the European Central Bank (ECB) and German yields remain stable. The yields at 5 and 10 years remain in the areas of 3.03%, 2.59% and 2.60% with slight increases. Meanwhile, World Interest Rate Probabilities (WIRP) indicate that the odds of a 25 basis point hike at the next meeting on September 14, 2023 have dropped to almost 25%. For the following meetings, the odds of a 25bp rise in October and December stand at 45% and 60%, and the ECB’s aggressive line bets remain low, leaving the door open for further declines in the ECB. Euro.

On the UK side, the August CIPS/Global Composite PMI beat expectations and rose to 48.6, above the expected 47.9 but down from 47.9 previously. Still, it remains in contraction territory. Likewise, the services survey stood at 49.5, above the expected 48.7 and below the previous 48.7. WIRP suggests that investors are still pricing in the Bank of England (BoE) raising rates to somewhere between 5.75-6% in this tightening cycle.

EUR/GBP levels to watch

Analyzing the daily chart, a short-term bearish trend is observed for the EUR/GBP pair. The Relative Strength Index (RSI) is below its midline in negative territory, showing a trajectory to the south. This aligns with a negative signal from the Moving Average Convergence Divergence (MACD), as shown by its red bars, underlining the growing bearish momentum. Furthermore, the pair is below the 20,100 and 200-day SMAs, indicating that in the bigger picture, bears are still in command and buyers have work to do.

Support levels: 0.8515, 0.8500, 0.8480.

Resistance levels: 0.8570 (20-day SMA), 0.8590, 0.8600.

EUR/GBP Daily Chart