During Friday's Asian session, EUR/GBP showed a moderate decline, continuing the downward trend that had formed on January 23. At the moment, the pair is testing the 0.8360 level for a downward breakdown, updating the minimum values since January 9th.
The key factor contributing to the weakening of the single currency was the outcome of the last meeting of the European Central Bank (ECB). As analysts predicted, the regulator lowered key interest rates by 25 basis points: the base rate is now 2.90%, and the deposit rate is 2.75%.
At the same time, in the accompanying statement, the ECB noted that inflation risks remain, and this requires further monitoring of the situation. However, there are also positive aspects: the growth rate of wages is beginning to stabilize, which may ease inflationary pressures in the long term.
However, the regulator did not disclose specific plans for the future trajectory of monetary policy. At the same time, market expectations are inclined to the fact that the ECB will continue the cycle of rate cuts until July.
Macroeconomic data points to the weakness of the Eurozone economy
Weak GDP statistics from Germany and the Eurozone exerted additional pressure on the euro.
• In the fourth quarter, the German economy contracted by 0.2%, which was worse than analysts' expectations (-0.1%) and compounded the previous decline of 0.1%. In annual terms, GDP showed an increase of 0.4%, but this also turned out to be lower than the projected 0.5%.
• In the Eurozone as a whole, the economy did not show growth in quarterly terms (0% versus the expected 0.1%), and the annual GDP growth rate was 0.9%, while the forecast assumed 1.0%.
At the same time, the index of business sentiment in the Eurozone rose from 93.7 to 95.2 points in January, exceeding the projected 94.1 points, indicating a slight improvement in business sentiment. However, this is still not enough to change the overall trend.
The pound is supported by strong lending data
The pound sterling strengthened yesterday due to positive statistics on the UK credit market.
• Consumer lending increased from 0.905 billion pounds to 1.045 billion pounds in December, exceeding forecasts (0.95 billion pounds).
• Net lending increased from 3.5 billion pounds to 4.6 billion pounds, showing the largest increase since September 2022.
• The number of approved mortgage applications also turned out to be higher than expected — 66,526 thousand against the projected 65,400 thousand.
These data support expectations of a recovery in the British economy, despite the upcoming tax increases outlined in the new budget. In addition, a recent survey of economists conducted by Reuters showed that most experts predict a reduction in the interest rate by the Bank of England at the next meeting from 4.75% to 4.50%. However, in the future, the regulator may take a break to assess the effect of the measures already taken.
EUR/GBP technical analysis for today
On the daily chart, the Bollinger Band indicator begins to turn downwards, expanding the range of fluctuations and creating space for further depreciation. The MACD retains a confident sell signal. Stochastic reached its minimum levels and moved sideways, indicating the likelihood of oversold euro in the short term.
Trading recommendations
• It is recommended to open sales of EUR/GBP after a confident breakdown down to the level of 0.8350 with a target of 0.8310. We place the stop loss at 0.8370.
• Purchases will be relevant if the pair is fixed above 0.8384. The bulls' immediate target is 0.8419. We put the stop loss at 0.8370.