- EUR/GBP rebounded from short-term lows and exceeded 0.8450.
- The BoE is keeping interest rates unchanged, citing a still tight labor market and uncertain inflation.
- Friday will end the trading week with UK retail sales results and PMIs in the EU and UK.
The EUR/GBP rate found some room for improvement on Thursday after the Bank of England left interest rates unchanged at 5.25%. EU average data did not trigger any major movements in either direction, although investors in Europe will see further weakening in the German Producer Price Index (PPI) in May.
The PPI index in Germany fell to 0.0% m/m in May, compared to the previous level of 0.2%, changing the growth forecast to 0.3%. YoY PPI data also missed expectations, falling to -2.2% for the year ended May. Annualized data rebounded from the previous -3.3%, but still failed to maintain the forecast recovery of -2.0%.
The BoE kept interest rates unchanged in June, as widely expected, but the focus on recent services inflation, combined with a ambiguous target to keep inflation at a “sustainable” level of 2%, has left sterling in a bind. The Bank of England subsequently noted its willingness to maintain restrictive policies for as long as necessary and emphasized that the UK labor market, although looser than previously, remains tight compared to historical data. Sterling lost ground against the euro, dragging EUR/GBP back up from an intraday low of 0.8435 to a retest of 0.8460.
Read more: BoE keeps interest rate at 5.25% as forecast
There will be a novel round of retail sales in the UK on Friday, which is forecast to return to 1.5% m/m in May after a -2.3% decline in April. The pan-European HCOB Purchasing Managers’ Index (PMI) and the UK PMI for June are expected to enhance slightly. The June EU manufacturing PMI is expected to rise to 47.9 from 47.3, while the services PMI component is expected to rise to 53.5 from 53.2. On the UK side, the June manufacturing PMI is expected to rise to 51.3 from 51.2, while the services PMI is expected to fall to 53.0 from 52.9.
EUR/GBP Technical Outlook
EUR/GBP has found juice for a bullish intraday rally, but the outlook for the pair is still decidedly bearish. The 0.8460 level represents a significant near-term hurdle for bulls to clear, and the pair has only just begun to recover from last week’s plunge to a 22-month low of 0.8400.
The pair has closed flat or down for five consecutive weeks, and despite a 0.80% rebound from near two-year lows, upside momentum remains anemic. If bidders manage to recover the balance, the 0.8500 rate will wait higher.
