EUR/GBP stumbles as ECB holds rates steady amid economic gloom

• ECB keeps deposit rate unchanged at 4%, citing concerns over Eurozone’s economic outlook.
• Despite UK’s stagflation fears, Pound Sterling appreciates against the Euro, trading at 0.8700.
• Retail sales in the UK hit their lowest October level, reflecting households’ struggle with inflation and slow growth.

EUR/GBP reversed its course on Thursday after the European Central Bank (ECB) kept rates on hold due to a deteriorating economic outlook for the bloc. Even though the economic perspective in the United Kingdom (UK) is not encouraging, as data reignited fears of stagflation, the Pound Sterling (GBP) appreciates against the Euro (EUR). The pair trades at 0.8692, down 0.36%.

Pound Sterling gains ground vs. the Euro after ECB’s cautious stance.

Earlier, the ECB decided to pause its tightening cycle, holding the deposit rate unchanged at 4%, while mentioning that it could be enough to curb inflation towards its 2% target if it remains at current levels for a longer time.

Following the bank’s decision, the ECB’s President Christine Lagarde said the Eurozone (EU) economy is weakening but added that inflationary pressures remain strong and could be aggravated due to the Middle East crisis. She added the ECB would remain data-dependent. Regarding a balance sheet reduction, Lagarde said there have not been discussions of an early reduction of the Pandemic Emergency Purchase Program (PEPP).

On the UK front, the Confederation of British Industry (CBI) revealed that retail sales reported their worst October for sales, as households struggle amid difficult economic times, with high inflation and economic growth slumping. Sales plunged -36, well below the -16 contraction estimated by analysts

EUR/GBP Price Analysis: Technical outlook

At the time of writing, the EUR/GBP is briskly testing the 200-day moving average (DMA) at 0.8992. A clear break would expose the current week’s low of 0.8682, followed by the 50-DMA at 0.8625. Further downside is seen at 0.8600. On the contrary, if the EUR/GBP stays above 0.8700, that could open the door to challenge the October 20 high at 0.8740, ahead of 0.8800.