EUR/GBP Cross Declines Amidst Protests in France
The EUR/GBP exchange rate dropped to around 0.8420 in the early hours of trading in Europe on Monday. The Euro (EUR) faced pressure from the British Pound (GBP) as protests in France escalated.
In a national address on Sunday, French President Emmanuel Macron described the violence during protests related to the rising cost of living as “shocking.” This unrest marked one of the most significant days of turmoil in France in recent years, with demonstrations also occurring in Belgium, Italy, and Portugal.
Kieran Williams, head of Asia FX at InTouch Capital Markets in London, mentioned that the unrest is more relevant to the euro through its impact on French bonds rather than affecting it directly.
Traders are also preparing for UK employment data to be released on Tuesday and the Consumer Price Index (CPI) inflation report on Wednesday. These upcoming figures could influence the likelihood of the Bank of England (BoE) making its first rate hike in over three years this November.
Bloomberg Economics’ chief UK economist, Dan Hanson, stated that a 25-basis-point hike is anticipated at the BoE’s November meeting, with another increase expected in February.
Current projections indicate the UK Unemployment Rate may rise to 5.0% for August, up from 4.9%. Additionally, the headline CPI is forecasted to increase by 3.4% year-over-year in September, while core CPI is expected to grow by 2.7% year-on-year in the same period.
ECB Faces Balancing Act Amid Economic Pressures
According to analysts at Rabobank, remarks made by ECB policymaker Wunsh highlight the central bank’s challenging position. Wunsh indicated that the rise in longer-dated yields does not necessarily preclude further rate hikes, which can be somewhat reassuring. However, Rabobank also cautioned that neglecting rising inflation pressures could lead to missteps reminiscent of past energy crises. Yet, they warn that acting too decisively without clear evidence could result in the ECB tightening policy excessively.
Governor Bailey’s Remarks and GBP Stability
The recent speech by Governor Bailey scored a 6.2/10 on the FXS Speechtracker, a tad below his historic 6.4/10. Even though he expressed frustration with persistently high UK inflation, his comments about the current limited second-round effects—suggesting a cautious dovish approach—might have dampened immediate GBP gains.
However, Bailey noted that the UK economy is “more resilient than we expected, not as strong as we need,” which indicates a possibility of maintaining a restrictive monetary policy for a longer period, offering some support to the GBP. His remarks about the influence of Middle East news on UK gilt yields imply that short-term GBP fluctuations might be more influenced by global dynamics than new policy insights from the BoE.
Technical Analysis of EUR/GBP
On the daily chart, the EUR/GBP pair exhibits a clear bearish trend, remaining below the 100-day Simple Moving Average (SMA) and the middle line of the 20-day Bollinger Bands. It approaches the lower Bollinger Band, with the Relative Strength Index (RSI) around 22, indicating prolonged selling pressure but also suggesting that further declines might be excessive at this point.
Looking at resistance levels, the initial barrier is at the 20-day SMA of the Bollinger Bands near 0.8505, with the 100-day SMA at 0.8565 providing additional resistance before a stronger cap near the upper band at 0.8630. On the support side, a break below the lower Bollinger Band at 0.8385 could lead to an extension of the ongoing downtrend.
