- The EUR/GBP rises as the economic data of the United Kingdom do not meet expectations.
- The GDP of the United Kingdom, industrial and manufacturing data falls, increasing expectations that the Bank of England could be forced to cut the rates even more.
- The EUR/GBP pair clings to profits while the bullish impulse supports higher prices.
The pound sterling (GBP) is falling in front of the euro (EUR) on Friday, after a series of economic data publications that pointed to a weakened United Kingdom economy.
With the Gross Domestic Product (GDP), the industrial and manufacturing production data that do not meet expectations, an increase in EUR/GBP has pushed prices above the 0.8650 area at the time of writing.
The monthly GDP figures published on Friday revealed that the United Kingdom’s economy contracted 0.1% in May, failing in the forecasts of an expansion of 0.1%.
Meanwhile, industrial and manufacturing production figures in May fell drastically 0.9% and 1.0% respectively, both below expectations.
With the economic impulse weakening, the data reinforces the expectations that the Bank of England (BOE) could adopt a more Dovish posture, increasing the probability of a rate cut, pressing the GBP and raising the EUR/GBP.
This fundamental weakness in the United Kingdom data provided a new catalyst for the EUR/GBP, with the par breaking above the level of fibonacci recoil of 23.6% of the March-April Trending trend in 0.8634. The movement reinforces the bullish feeling as the 10 -day mobile average continues to rise and the relative force index (RSI) amounts to 66, approaching the overcompra territory but still without pointing out exhaustion.
On the positive side, a sustained closure above the psychological barrier of 0.8670 could clear the way for a new test of the maximum of April about 0.8738, with a possible extension towards the resistance zone of 0.8750–0–0.8780.
Continuous weak data from the United Kingdom, the expansion of performance differentials, or any Dovish change of the Bank of England would probably add fuel to the rally.
In contrast, the inability to stay above 0.8634 could trigger a setback towards the initial support at 0.8622 (10 -day mobile mean), followed by the Fibonacci level of 38.2% in 0.8576. A rupture below that could expose the 50 -day mobile average about 0.8494 and change the short -term perspective to neutral.
EUR/GBP daily graphics
LIBRA ESTERLINA – FREQUENTLY QUESTIONS
The sterling pound (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most commercialized currency exchange unit (FX) in the world, representing 12% of all transactions, with an average of $ 630 billion a day, according to data from 2022. Its key commercial peers are GBP/USD, which represents 11% of FX, GBP/JPY (3%) and EUR/GBP (2%). The sterling pound is issued by the Bank of England (BOE).
The most important factor that influences the value of sterling pound is the monetary policy decided by the Bank of England. The Bank of England bases its decisions itself has achieved its main objective of “price stability”: a constant inflation rate of around 2%. Its main tool to achieve this is the adjustment of interest rates. When inflation is too high, the Bank of England will try to control it by raising interest rates, which makes access to credit for people and companies more expensive. This is generally positive for sterling pound, since higher interest rates make the United Kingdom a more attractive place for global investors to invest their money. When inflation falls too much it is a sign that economic growth is slowing down. In this scenario, the Bank of England will consider lowering interest rates to reduce credit, so that companies will borrow more to invest in projects that generate growth.
Published data measure the health of the economy and can affect the value of sterling pound. Indicators such as GDP, manufacturing and services PMI and employment can influence the direction of the sterling pound.
Another important fact that is published and affects the pound sterling is the commercial balance. This indicator measures the difference between what a country earns with its exports and what you spend on imports during a given period. If a country produces highly demanded export products, its currency will benefit exclusively from the additional demand created by foreign buyers seeking to buy those goods. Therefore, a positive net trade balance strengthens a currency and vice versa in the case of a negative balance
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.
