- EUR/GBP gains traction for the second day in a row and rises to a nearly two-month high.
- A combination of factors continues to weaken the British pound and continues to offer support to the pair.
- Euro bulls seem reluctant to open aggressive positions ahead of the ECB’s monetary policy decision.
The crossing EUR/GBP extends the previous day’s strong gains and moves higher for the second day in a row on Thursday. The intraday rise leads the cross to its highest level since mid-Junewith the bulls now expecting sustained strength beyond the 0.8700 round level.
The new Prime Minister of the United Kingdom, Liz Truss, will present her plan on Thursday to face the increase in the energy billwhich could cost up to £130bn over the next 18 months, which would increase the budget deficit. This comes amid a gloomy outlook for the UK economy and lowering bets on more aggressive rate hikes by the Bank of England. The combination of the above factors contributes to the British pound underperforming and acts as a tailwind for the EUR/GBP cross.
On the other hand, the common currency is struggling to gain significant traction, as investors prefer to stay on the sidelines ahead of the European Central Bank meeting. This, in turn, means that the EUR/GBP cross does not receive any momentum. The ECB is expected to raise interest rates for the second time in as many meetings to control inflation. However, investors remain divided on the magnitude of the rise amid the worsening economic outlook.
However, current market prices indicate a higher probability of a 75 basis point increase amid record annualized inflation in the eurozone. Aside from the rate hike announcement, the focus will be on the post-meeting press conference. Investors will closely watch ECB President Christine Lagarde’s comments, which should infuse some volatility around the common currency and help determine the short-term path of the EUR/GBP cross.
Technical levels to watch
Source: Fx Street
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