- EUR/GBP falls to a new multi-year low at the start of the European session on Friday.
- Stagflation fears turn out to be a key factor weighing on the common currency.
- A stronger dollar puts pressure on the British pound and helps limit cross losses for now.
The crossing EUR/GBP has moved lower at the start of the European session on Friday and has fallen to a new year-on-year low around the level of 0.8260. At time of writing, the cross recovers slightly towards 0.8270, still negative on the day.
After a short break the day before, the EUR/GBP has moved lower for the fifth day in a row on Friday and has extended its recent decline from the 0.8400 level. Concerns that the war in Ukraine could weigh on the pace of recovery in the eurozone turned out to be a key factor behind the common currency’s relative underperformance against sterling.
It is expected that the European economy suffers the effects in the form of even higher energy prices, which could further fuel inflation. On the other hand, the chief economist of the European Central Bank, Philip Lane pointed out that the conflict in Ukraine can reduce the GDP of the eurozone between 0.3% and 0.4% this year. This has been fueling the risk of stagflation and weighing on the euro.
In a new escalation of the war between Russia and Ukraine, Russian troops attacked Europe’s largest nuclear power plant in Ukraine first thing this Friday. In addition, the Ukrainian regional authority confirmed that the Zaporizhzhia NPP has been seized by Russian military forces. On the other hand, media reports suggest that gas flowing from Russia to Europe has stopped.
The latest geopolitical events hopes have faded that the ECB would begin to normalize monetary policy at the next meeting on March 10. This was seen as another contributing factor to the pair’s continued decline. EUR/GBP at the lowest level since June 2016. That said, the continued strength of the US dollar weighed on the British pound and could lend some support to the cross.
However, the fundamental curtain should continue to weigh on the common currency and support the prospects of further declines in EUR/GBP. Therefore, any recovery attempts could be seen as a selling opportunity and quickly stopped. That said, the bears are likely to wait for some continuation selling below 0.8250 before opening any new positions.
EUR/GBP technical levels
Source: Fx Street
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