EUR/GBP remains slightly higher after Eurozone CPI, but remains below the 0.900 level

• EUR/GBP gains some positive traction for the second day in a row, though it lacks bullish conviction.
• A modest decline in consumer inflation in the Eurozone limits the rise of the Euro and EUR/GBP.
• The selling tone around the British pound supports the prospects for further gains in the EUR/GBP.

The crossing EUR/GBP extends this week’s bounce from near the 100-day SMA, near the 0.8755-0.8750 region or 1-month low, and rises for the second day in a row on Thursday. The cross, however, is back a few pips from the almost two-week high reached during the first half of the European session and is currently around the zone of 0.8875-0.8870.

The common currency continues its relative better performance against its British counterpart amid the growing expectations of further rate hikes by the European Central Bank (ECB), which in turn acts as a tailwind for the EUR/GBP cross. Expectations have been bolstered by hawkish comments from ECB officials and consumer inflation data released this week for France, Spain and Germany, the euro zone’s three largest economies.

In fact, the president of the Bundesbank, Joachim Nagel declared on Wednesday that the interest rate hike announced by the ECB for March will not be the last, and that even other significant increases could be necessary later on. For his part, the governor of the French ECB, Francois Villeroy de Galhau, affirmed that the ECB maintains its commitment to bring inflation back to 2% by the end of 2024 and that it is preferable to reach the terminal rate in summer, no later than September.

The EUR/GBP cross, however, fails to capitalize on the intraday rise and remains below the 0.8900 level. after Eurostat reported that the Eurozone annualized HICP declined to a rate of 8.5% yoy in February from 8.6% previously. This, coupled with a nice rally in US dollar demand, is holding back Euro bulls from taking aggressive positions. Meanwhile, the decline looks supported amid the selling tone surrounding the British pound.

Market anxiety over the new UK-EU Brexit deal on the Northern Ireland Protocol weighs on sterling. In addition, the evolution of prices suggests that the additional rate hike by the Bank of England (BoE) is already fully discounted in the markets. This, along with some speculation that the UK central bank would pause the current tightening cycle, favors EUR/GBP bulls and supports the prospects for a further move higher in the short term.

EUR/GBP technical levels to watch