Hawkish ECB boost the single currency
The euro has caught a strong bid against the pound in recent days on the back of some very hawkish commentary from the ECB and poor economic data in the UK.
The ECB will become the latest central bank to concede on the inflation argument and raise rates in July and September, as per President Christine Lagarde’s blog, although some support an even more aggressive approach.
That’s boosted the euro at a time when the UK economy is facing the prospect of a recession, with PMI data today highlighting the struggles already appearing in the all-important services sector.
EUR/GBP has rallied strongly on the back of this, holding above the 200/233-day SMA band in the process and pushing a breakout of the recent highs. It also broke above the 55/89-period SMA band on the 4-hour chart in the process which has capped its rallies over the last week.
The next test for the pair is 0.86 and 0.8650 which has been a key area of resistance on numerous occasions over the last year, with 0.87 potentially offering further resistance above.
Eventually, the euro area and others will likely be dragged into the recession conversation which may see the bullish case wane but for now, it’s interest rates that are dominating the conversation and giving the euro a major lift.