EUR/GBP hits key resistance ahead of ECB rate decision

The EUR/GBP price is on the spotlight after the strong UK consumer and producer inflation data and the upcoming European Central Bank (ECB) decision. It rose to a high of 0.8542, which was the highest level since July 7th of this year. 

UK inflation and ECB decision

Consumer and producer inflation in the UK surged to the highest level in a decade as the cost of fuel surged. According to the Office of National Statistics (ONS), the country’s headline inflation spiked from 0.7% in May to 0.8% in June. This increase was better than the median estimate of 0.7%. 

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This monthly increase translated to a year-on-year gain of 9.4%, which was also bigger than the expected 9.3%. It was also substantially higher than the previous month’s increase of 9.1%. 

Inflation moved slightly lower when you exclude the volatile food and energy prices. It dropped from 5.9% to 5.8%. Further, producer price index input rose by 24% while the PPI output rose to 16.5%.

Therefore, the EUR/GBP pair rose even as investors anticipated a bigger rate hike by the Bank of England (BoE). In a statement on Tuesday, the bank’s governor said that his committee will likely increase rates by about 0.50% when it meets in August. This will be in addition to the five 0.50% increases that the bank has made since December.

The EUR to GBP price is also on the spotlight ahead of the coming ECB rate decision that is scheduled for Thursday. Based on the bank’s guidance, analysts expect that the ECB will deliver its first interest rate hike in 11 years. 

There is also a possibility that the bank will hike interest rates by 0.50%. Still, the risk is that the hike will usher in an era of a new EU debt crisis.

EUR/GBP forecast

Turning to the hourly chart, we see that the EUR/GBP pair rose to a high of 0.8540 after the latest UK inflation data. This price is slightly below the upper side of the ascending channel shown in red. It has moved above the 25-period moving average while the Relative Strength Index (RSI) is at the neutral point of 50.

Therefore, the EUR to GBP exchange rate will likely pull back ahead of the ECB decision. This will happen as sellers target the lower side of the ascending channel at 0.8495.

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