- The divergent policy prospects of the European Central Bank and the Bank of England weigh on the euro.
- The United Kingdom’s labor data show mixed signals, but the strong salary growth maintains the pressure on the BOE to remain cautious in rates cuts.
- EUR/GBP Try a key technical support around the 100 -day mobile average.
The euro (EUR) is still under pressure in front of the sterling pound (GBP) on Tuesday, since divergent expectations of monetary policy between the European Central Bank (ECB) and the Bank of England (BOE) continue to drive the feeling.
At the time of writing, the EUR/GBP is negotiated about 0.8419, slightly below a critical support zone, but showing signs of stabilization before high -impact events.
On Tuesday, the Zew economic feeling index in Germany offered a modestly positive surprise in future expectations, but was counteracted by a disappointing current conditions. Market participants largely ignored the data, focusing instead on the ECB signals that continue to point towards interest rate cuts as soon as in June, reinforcing the bearish bias for the euro. In contrast, the BOE has maintained a cautious posture, waiting for more sustained uninflation signs before committing to a moderate turn.
Labor data of the United Kingdom Mixed, but salary growth complicates the BOE perspective
Economic data published Tuesday by the United Kingdom National Statistics Office (ONS) offered a nuanced vision of internal working conditions. The ILO unemployment rate, a three -month mobile unemployment average calculated by the International Labor Organization, increased slightly to 4.5%, from 4.4% and in line with the forecasts.
Meanwhile, the number of applicants, who measures the number of people who request unemployment related benefits, increased by 5,200 in April. Although it is an increase, this figure was much better than the 22,300 expected, suggesting some resilience.
However, the change in employment, a metric that tracks the net number of added jobs, slowed 112,000 in March from 206,000 in February, pointing to a reduced contracting impulse.
The most notable data came from the average profit index, an indicator of salary inflation. Salaries excluding bonuses increased by 5.6% year -on -year, just below the 7% forecast. Profit, including bonuses, increased 5.5%, exceeding 5.2%expectations. These high salary figures indicate a persistent inflation pressure in the labor market, complicating the BOE’s ability to relax politics without undermining its inflation objective.
BCE relaxation bias under scrutiny before German inflation data
The recent low performance of the euro also reflects the conviction of the market that the ECB will act before its peers in the delivery of a policy relaxation. Policies responsible have increasingly pointed out their comfort with cutting interest rates as inflation trends decrease throughout the euro zone. Now the attention focuses on the harmonized index of consumer prices (HICP) of Germany for April, an inflation measure aligned with the Eurozone, which is expected to remain stable at 2.2% year -on -year.
A missing surprise could consolidate the expectations of a rate cut in June, probably deepening the bear trend of the EUR/GBP.
EUR/GBP cling to support while bassists point to a deeper setback
From a technical perspective, the EUR/GBP is testing the support near the 61.8% fibonacci recoil level of the rebound in March-April, an area commonly seen by the operators as a critical turning point. This level, located at 0.8432, often indicates a possible reversion if it is maintained, or a continuation of the trend if it breaks decisively.
The torque is currently being negotiated just below this Fibonacci level at 0.8419, while it is still maintained above the simple mobile average (SMA) of 100 days in 0.8402, which acts as a dynamic support.
The 50 -day SMA, now at 0.8467, serves as the first resistance layer, closely aligning with the 50% decline level at 0.8490. A daily closure below both the 61.8% setback and the 100 -day SMA would confirm a bearish continuation, opening the door to the 78.6% setback in 0.8349, followed by the full setback support at 0.8242.
The relative force index (RSI), a momentum oscillator that measures over -sales conditions, is currently below 38, moderately above the overall threshold of 30. This suggests that the downward momentum may be stretched, although not necessarily exhausted.
EUR/GBP daily graphics
While the EUR/GBP remains below the 50 -day SMA and does not manage to recover key levels of Fibonacci, the technical bias favors the decline. The operators will seek signals from the speakers of the BOE and the ECB this week, together with the publication of German inflation, for the next directional movement. A rupture confirmed below 0.8400 would further encourage bassists, while a recovery above 0.8490 could point out a short -term reversion.
FAQS Central Banks
Central banks have a key mandate that consists in guaranteeing the stability of prices in a country or region. Economies constantly face inflation or deflation when the prices of certain goods and services fluctuate. A constant rise in the prices of the same goods means inflation, a constant decrease in the prices of the same goods means deflation. It is the Central Bank’s task to keep the demand online by adjusting its interest rate. For larger central banks, such as the US Federal Reserve (FED), the European Central Bank (ECB) or the Bank of England (BOE), the mandate is to maintain inflation about 2%.
A central bank has an important tool to raise or lower inflation: modify its reference interest rate. In precommunicated moments, the Central Bank will issue a statement with its reference interest rate and give additional reasons of why it maintains or modifies it (cut it or the SUBE). Local banks will adjust their savings and loan rates accordingly, which in turn will make it difficult or facilitate that citizens obtain profits from their savings or that companies ask for loans and invest in their businesses. When the Central Bank substantially rises interest rates, there is talk of monetary hardening. When it reduces its reference rate, it is called monetary relaxation.
A central bank is usually politically independent. The members of the Central Bank Policy Council go through a series of panels and hearings before being appointed for a position in the Policy Council. Each member of that council usually has a certain conviction on how the Central Bank should control inflation and the consequent monetary policy. Members who want a very flexible monetary policy, with low types and cheap loans, to substantially boost the economy, while comprising with inflation slightly greater than 2%, are called “pigeons.” Members who prefer higher types to reward savings and want to control inflation at all times are called “hawks” and will not rest until inflation is located at 2% or just below.
Normally, there is a president who directs each meeting, has to create a consensus between the hawks or the pigeons and has the last word when the votes must be divided to avoid a draw to 50 on whether the current policy must be adjusted. The president will pronounce speeches, which can often be followed live, in which he will communicate the current monetary position and perspectives. A central bank will try to boost its monetary policy without causing violent oscillations of the fees, the actions or their currency. All members of the Central Bank will channel their position towards the markets before a monetary policy meeting. A few days before a monetary policy meeting is held and until the new policy has been communicated, the members are prohibited from speaking publicly. It is what is called a period of silence.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
