EUR/GBP Remains Depressed Around Mid-0.8800s, Downside Seems Cushioned

The EUR/GBP cross comes under some selling pressure on Friday and extends the previous day’s pullback from the vicinity of the 0.8900 mark or a nearly two-week high. The intraday downtick picks up pace during the first half of the European session and drags spot prices to a fresh daily low, around the 0.8845 regions in the last hour.

The British Pound draws support from rising bets for additional rate hikes by the Bank of England (BoE) and turns out to be a key factor dragging the EUR/GBP cross lower. It is worth recalling that the BoE Governor Andrew Bailey said on Wednesday that further increase in bank rates might be appropriate, though nothing has been decided.

This was followed by hawkish remarks by the BoE Chief Economist Huw Pill on Thursday, noting that Britain’s economy is showing slightly more momentum than expected and pay growth is proving a bit faster than the central bank forecast last month.

However, the downside for the EUR/GBP cross seems cushioned amid expectations that the European Central Bank (ECB) will continue hiking rates in the coming months. The minutes of the ECB meeting held in February have reflected a very hawkish debate and a precise determination to hike rates beyond March.

On Friday, ECB Governing Council member Boštjan Vasle said that he expects the March rate hike to be followed by additional increases. Separately, ECB policymaker Madis Muller noted that rates would have to remain high for a while, supporting prospects for a 50 bps rate hike in March.

On the economic data front, the composite Eurozone Services PMI for February was revised lower to 52.7 from the 53.0 anticipated. In contrast, the UK Services PMI was finalized at 53.5 against the flash estimate for a reading of 53.3.

This further contributes to the offered tone surrounding the EUR/GBP cross. The above mixed fundamental backdrop warrants some caution before placing aggressive bearish bets and confirming that this week’s bounce from the 100-day Simple Moving Average (SMA) has run out of steam.