- A combination of diverging factors fails to give EUR/GBP a significant lift.
- Political uncertainty in the UK is weighing on the British pound and giving the pair some support.
- The resurgence in demand for the dollar weighs on the common currency and seems to limit the pair.
The crossing EUR/GBP has difficulty gaining significant momentum and oscillates in a tight range around the 0.8700 level during the first half of the European session on Wednesday.
Political uncertainty in the UK it is seen as a key factor weighing on the British pound, which in turn acts as a tailwind for the EUR/GBP cross. In fact, the rebels within the ruling Conservative Party are coming together to replace the newly elected UK Prime Minister, Liz Truss, after the recent tax cut fiasco. Apart of this, looming recession risks could force the Bank of England to adopt a gradual approach towards rising interest rates. This, to a greater extent, outshines a hotter-than-expected British CPI, which jumped to a 40-year highthough it didn’t impress pound bulls much.
On the other hand, the common currency is supported by rising expectations for another big 75 basis point rate hike by the European Central Bank at the next monetary policy meeting on October 27. ECB President Christine Lagarde earlier this month referred to rate hikes as the best tool to fight persistently high inflation. In fact, the final reading of the report of the Harmonized Consumer Price Index (HICP) for the euro zone showed that inflation in the region soared to 9.9% year-on-year in September. That said, the revival in demand for the dollar acts as a headwind for the euro and limits the rise of the EUR/GBP cross.
The mixed fundamental background, although seems to lean in favor of the bulls, warrants some caution before positioning for any further upside moves. The market’s attention is now focused on the preliminary PMI data for the euro zone, due to be released next week. The data could influence the common currency and give a significant boost to the EUR/GBP cross before the crucial ECB monetary policy meeting.
EUR/GBP technical levels
Source: Fx Street
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