EUR/GBP clings to soft UK CPI-led gains from mid-0.8800, near weekly highs

Published On: February 15, 2023
  • EUR/GBP gains strong positive traction and snaps a seven-day losing streak to a two-week low.

  • The softer UK CPI print weighs on the Sterling and prompts an aggressive short-covering move.

  • Bets for additional jumbo interest rate hikes by the ECB underpin and support the euro.

The EUR/GBP cross catches aggressive bids on Wednesday and snaps a seven-day losing streak to a two-week low, around the 0.8800 mark touched the previous day. The cross sticks to its strong gains through the early part of the European session and is currently placed near the 0.8865-0.8870 region, or the top end of the weekly range.

The British Pound weakens across the board in reaction to softer-than-expected UK consumer inflation figures and triggers an intraday short-covering move around the EUR/GBP cross. In fact, the UK Office for National Statistics reported that the headline CPI declined by 0.6% in January, more than the 0.4% fall anticipated. Adding to this, the yearly rate decelerated from 10.5% in December to 10.1% during the reported month, again missing estimates for a reading of 10.3%.

More importantly, core CPI, which excludes seasonally volatile products like food and energy, came in at 5.8% YoY compared to the previous 6.3% and 6.2% expected. The data could ease pressure on the Bank of England for aggressive rate hikes, especially after Tuesday’s UK wage growth figures. Apart from this, bets on additional jumbo rate hikes by the European Central Bank (ECB) underpin the euro and provide an additional lift to the EUR/GBP cross.

The aforementioned fundamental backdrop supports prospects for a further near-term appreciating move. That said, the lack of follow-through buying warrants some caution for bullish traders. Hence, it will be prudent to wait for a sustained strength back above the 0.8900 mark before confirming that the EUR/GBP pair’s recent pullback from the highest level since September 2022 has run its course.

Technical levels to watch

Leave a Reply

Your email address will not be published. Required fields are marked *