The EUR to GBP exchange rate is under pressure as investors react to the deteriorating European economy. The EUR/GBP price is trading at 0.8615, which is significantly lower than last week’s high of 0.8678. It has been in a tight range in the past two trading days.
European economy at risk
The euro to GBP rate has declined sharply in the past few days as investors position themselves for the first ECB interest rate hike in more than a decade. The bank is expected to hike rates by 0.50% this month in its bid to fight the soaring inflation. Data published on Friday revealed that Europe’s consumer price index surged to an all-time high of 8.6%. This rate is even higher than that of the United States and the UK.
Countries like France, Spain, and Italy all saw their inflation surge in June. In Germany, prices moderated slightly because of the government’s tax incentives, which are temporary in nature. Therefore, analysts expect that the bloc’s inflation could hit 10% this year.
The EUR to GBP is therefore falling as investors expect more volatility when the ECB makes its first interest rate hike in more than a decade. Higher interest rates in Europe risks another debt crisis. For example, the spread between German and Spanish bond yields narrowed substantially last month when the ECB decided to end its asset purchases.
The EUR/GBP price will today react mildly to a statement by BOE’s Andrew Bailey. He will talk about the state of the economy and outline measures that the bank will take to fight inflation. His statement will come out as the BOE publishes its Financial Stability Report. The pair will also react to the upcoming PMI data Markit.
EUR to GBP forecast
The four-hour chart shows that the EUR/GBP price has been in a consolidation phase in the past two days. It is hovering slightly above the lower side of the ascending channel which is shown in blue. The price is also slightly below the 25-day moving average. Notably, it has formed what looks like a small bearish pennant pattern.
At this point, the outlook for the euro to GBP rate is neutral with a bearish bias. A drop below the lower side of the ascending channel will signal that bears have prevailed. As a result, the pair will then move to test the next support at 0.8550. The alternate scenario is where the pair rises as bulls aim for the upper side of the channel at 0.8680.
