- The euro weakened and euro zone yields fell after the emergency ECB meeting.
- The pound is stable before the meeting of the Bank of England.
- EUR/GBP with chances for more gains while above 0.8600.
The EUR/GBP dipped lower on Wednesday trading, having touched 0.8720, the highest level since February 2021. The euro fell back to 0.8613 after the European Central Bank’s emergency meeting.
EUR/GBP remains bullish despite pullback
The ECB surprised market participants with an emergency meeting, although the result did not show any big surprises. The central bank “decided that it will apply flexibility in the reinvestment of repayments due in the PEPP portfolio, in order to preserve the functioning of the monetary policy transmission mechanism” and also “decided to give a mandate to the relevant committees of the Eurosystem, together with the services of the ECB, to accelerate the finalization of the design of a new anti-fragmentation instrument for consideration by the Governing Council.”
Rabobank analysts note that the ECB reinforced its commitment to contain spreads in the euro zone. “However, the statement leaves a lot of uncertainty about the extent of the ECB’s intervention. We look forward to more clarity in July.” Stock markets in Europe rose after the meeting and euro zone bonds rose sharply. The 10-year Treasury bond yield stands at 3.90%, down 8.50%.
On Thursday it will be the turn of the Bank of England. The consensus is for a 25 basis point rate hike. TD Securities economists expect the Bank of England to continue with a cautionary message. “But with 4 votes in favor of a 50bps hike, we think the meeting will mark a slightly aggressive pivot, and we expect more 25bps hikes through the end of the year.”
In a few hours, on Wednesday the Federal Reserve will announce its decision that could trigger volatility. Awaiting the FOMC statement, EUR/GBP is hovering around 0.8620/25, off the highs but still above the key 0.8600 level. The outlook is tilted to the upside as long as it is above 0.8550.
Technical levels
Source: Fx Street
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