EUR/GBP to stabilise at 0.8700 after BoE decision

The British pound has been one of the best-performing currencies this year as last year’s headwinds on energy have become the new tailwinds. The EUR/GBP price was trading at 0.8691 on Thursday, 2% below the highest level in April. Similarly, the GBP/CHF and the GBP/USD pair have risen in the past few weeks.

Bank of England decision

Sterling has done well in 2023 as the fears that most investors were expecting in 2022 failed to materialize. For example, there were fears that the country’s inflation would surge to 18% this year because of the soaring natural gas prices. This year, as I wrote here, natural gas prices have dropped to the lowest level since 2021.

Economic data from the UK have been better than expected. For example, house prices have dropped at a slower pace than expected while the GDP expanded at a faster pace than estimated. Inflation, at 10.4%, is also lower than Citi’s estimate of 18%.

It is against this backdrop that the Bank of England (BoE) will conclude its two-day meeting on Thursday. Analysts expect that the bank will hike by 0.25% as the Fed and ECB did last week. The bank will also signal that it has more room to hike. Some BoE officials are also expected to push back against further hikes.

EUR/GBP technical analysis

Analysts at ING believe that the EUR/GBP pair will remain in this consolidation phase after the BOE decision. They expect that the pair will hover at 0.8700 after the report if there is no major shock from the committee. The report said:

“If anything, the balance of risks is skewed to the downside, but our call is for this meeting to have a relatively contained directional impact on the pound today. Cable may stabilise around 1.26 and EUR/GBP around 0.8700 for now.”

I concur with this view that the pair will likely have no major movement after the BoE decision. The key support and resistance levels to watch will be at 0.8670 (this week’s low and the psychological level at 0.8700.