- A combination of factors helps EUR / GBP make a positive bounce from multi-month lows.
- A possible extension of the lockdowns in Britain and UK macroeconomic data weigh on the British pound.
- The optimistic ECB and the mostly positive Eurozone PMIs underpin the euro.
The crossing EUR/GBP remains close to daily highs, just above the 0.8900 level, during the European session on Friday, with the bulls now looking to take advantage of the positive momentum.
The cross has gained strong positive traction on the last trading day of the week and has rebounded further from the eight-month lows, around the 0.8830 region touched the previous day. The British pound turned out to be the worst performing currency on Friday, which in turn triggered some short hedging on the EUR / GBP cross.
The pound sterling has been weighed down by signs that the blockades in Britain will be extended, while has lost additional ground following the release of pessimistic UK retail sales figures. In fact, the main figures showed a growth of 0.3% in December, while the underlying sales increased 0.4% month-on-month, both coming in below estimates.
Further, Markit’s preliminary UK PMI has shown a sharp decline in the services sector, losing more than 10 points from 49.4 in December to 38.8 in January. The result is well below the expected 45 points, being the worst reading recorded since last May.
On the other hand, the common currency has been supported by a slight optimistic adjustment by the European Central Bank (ECB) on Thursday. At the press conference after the meeting, ECB President Christine Lagarde said the central bank may not need to exhaust PEPP’s € 1.85 trillion endowment if favorable financing conditions can be maintained.
The euro has found additional support in German data, which showed business activity in the services sector contracted less than expected in January. IHS Markit’s preliminary German services PMI stood at 46.8 for the reported month versus estimates pointing to a drop to 45.3 from 47.0 in December.
Meanwhile, the German manufacturing sector indicator fell short of expectations, falling to 57 points in December from 58.3. On the other hand, the Eurozone Preliminary Manufacturing PMI was slightly better than expected, but was largely offset by further contraction in the services industry.
EUR / GBP technical levels
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