- EUR/GBP extended its decline to around 0.8310 in early European trading on Friday.
- The negative outlook on the cross remains as the RSI indicator is bearish and the price is below the 100-day EMA.
- The immediate resistance level appears at 0.8355. The first downside target is seen at 0.8290.
Early in European trading on Friday, the EUR/GBP cross remained on the defensive near 0.8310. The Bank of England (BoE) cut interest rates by 25 basis points (bps) at its November meeting on Thursday, bringing the policy rate to 4.75%. Central Bank Governor Andrew Bailey told a press conference that the central bank needed to maintain a “gradual approach” to policy easing.
However, expectations that the BoE will not cut rates as aggressively as the European Central Bank (ECB) may provide some support for the pound sterling (GBP) and cap any upside in the cross in the short term.
According to the 4-hour chart, the EUR/GBP cross remains below the key 100-period exponential moving average (EMA), giving rise to a negative outlook. Furthermore, the Relative Strength Index (RSI) is located below the midline around 35.55, indicating that further decline cannot be ruled out, thus further strengthening the downside momentum.
The first downside target of the cross appears near the lower limit of the downtrend channel at 0.8290. A break above this level could lead to a fall to the March 4, 2022 low of 0.8230. The next competitive level to look at is the psychological level of 0.8200.
On the bullish side, a key resistance level is seen at 0.8355, which represents the confluence of the top of the trend channel and the 100-period EMA. A decisive break above this level could lead to a rally to the November 4th high of 0.8419.
EUR/GBP 4-hour chart
(This article was amended on 8 November 09:53 GMT to add EUR/GBP chart.)
Frequently asked questions about the British pound
Pound Sterling (GBP) is the world's oldest currency (886 AD) and is the official currency of the United Kingdom. According to 2022 data, foreign exchange (FX) trade volume is the fourth largest in the world, accounting for 12% of all trades and an average of $630 billion per day. Its main trading pairs are GBP/USD, also known as the “cable”, which accounts for 11% of FX, GBP/JPY (3%), known as the “dragon” among traders, and EUR/GBP (2%) . %). Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the British pound is monetary policy, as determined by the Bank of England. The Bank of England's decision will be based on whether it has achieved its main objective of “price stability,'' or a stable inflation rate of around 2%. The main tool for achieving this is interest rate adjustment. If inflation is too high, the BoE will try to control it by raising interest rates, making credit more costly for people and businesses. This is generally positive for the pound, as rising interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low, it is a sign that economic growth is slowing. In this scenario, the BOE would consider lowering interest rates to make credit cheaper so companies can borrow more to invest in growth-generating projects.
The data release measures the health of the economy and could impact the value of the pound. Indicators such as GDP, manufacturing and services PMI, and employment can all influence the direction of GBP. A strong economy is good for the pound. As well as attracting more overseas investment, that could prompt the BoE to raise interest rates, which could directly lead to a stronger pound. Otherwise, if economic indicators are weak, the pound may weaken.
Another important piece of data about the British pound is its trade balance. This indicator measures the difference between what a country earns from exports and what it spends on imports over a given period of time. If a country produces highly sought-after export goods, its currency will benefit purely from the additional demand generated from foreign buyers looking to purchase these goods. Therefore, if the net trade balance is positive, the currency strengthens, and vice versa if it is negative.
