EUR/GBP struggles to gain traction, holds above 0.8800 ahead of UK budget

• EUR/GBP rises for the second day in a row, though lacking any continuation buying, then pulls back.
• Expectations that the Bank of England could pause its rate hike cycle weigh on the GBP and offer support for the pair.
• Investors now await the UK budget before the ECB meeting on Thursday.

The crossing EUR/GBP is trading within a tight range on Tuesday, with the intention of taking advantage of the previous day’s nice bounce from the 0.8775 area. The cross moves with a slight negative bias during the European session and is currently around the area of ​​0.8815losing about 0.15% on the day.

Expectations that the Bank of England will pause its rate hike cycle next week turn out to be a key factor behind the relative underperformance of the British pound, which in turn offers support to the EUR/GBP. Markets are now pricing in around 40% chance the BoE will leave rates unchanged of interest on March 23, amid signs that British wages are cooling off. Expectations fell after the UK’s Office for National Statistics reported on Tuesday that annual growth in total median wages – including bonuses – slowed to 5.7% in the three months to January, from 6% in the prior month. Excluding bonuses, salary growth went from 6.7% to 6.5%.

On the contrary, Several European Central Bank (ECB) monetary policymakers have recently backed the possibility of further rate hikes beyond the March meeting.. This, in turn, continues to support the common currency and appears to act as a tailwind for EUR/GBP. However, the bulls seem reluctant to open aggressive positions, preferring to wait on the sidelines before the crucial ECB monetary policy meeting on Thursday. Wednesday will present the new UK government budgetwhich could influence the pound sterling and give some impetus to the cross in the absence of relevant macroeconomic data.

However, the aforementioned fundamental background supports the prospects of a significant rise in the EUR/GBP cross. Even from a technical perspective, the previous day’s recovery reaffirmed strong support near the 100-day SMA at 0.8770, which should now act as a key point and strong short-term support for the pair. However, a convincing break below this region would negate the positive outlook and shift the bias in favor of the bears, paving the way for an extension of the recent pullback lower to a possible target around 0.8680, where the SMA of 200 days and a trend line.

EUR/GBP technical levels to watch