EUR to GBP (EUR/GBP) forecast ahead of ECB decision

The EUR/GBP exchange rate is gearing up for a busy time ahead of the latest UK budget and European Central Bank (ECB) decision. It has bounced back from this week’s low of 0.8778 to a high of 0.8835 as the euro regains its strength.

UK budget and ECB decision

The EUR to GBP exchange rate held quite well as investors prepare for the first Spring budget of Rishi Sunak’s administration. In it, the Chancellor of the Exchequer, Jeremy Hunt, will put forward measures that he believes will help support the economy.

The budget is an important catalyst for the British pound. However, its impact on the currency will be limited since we already know most of what is in the budget. For example, media reports shows that the headline corporate tax rate will rise from 19% to 25%. 

This means that the UK, which is a smaller country than the US, will have a higher corporate tax rate. However, by some measures, which include the fact that the UK does not have state taxes, the country is still friendly to companies.

Jeremy Hunt’s budget will bring memories of the disastrous Liz Truss administration that led to jitters following her mini-budget proposals. In them, Kwasi Kwarteng announced unpaid for tax cuts worth over 45 billion pounds.

The next key catalyst for the EUR/GBP price will be the upcoming European Central Bank (ECB) decision scheduled for Thursday. Economists believe that the ECB will embrace a cautious tone as it balances its battle against inflation and financial stability.

Therefore, there is a likelihood that the ECB will hike rates by 0.50% and then shift to a dovish tone. Analysts at ING have come up with an interesting cheat sheet on key scenarios. Their base case calls for a 0.50% hike. They wrote:

“The recent developments in the US banking sector and large swings in rate expectations both mean that a 75bp move is looking even less likely and that 25bp may be discussed”

EUR/GBP exchange rate forecast

EUR/GBP chart by TradingView

Turning to the hourly chart, we see that the EUR to GBP price formed a hammer pattern on Thursday. In price action analysis, this pattern is usually a bullish sign, which explains why the pair has continued rising. It has moved slightly above the key resistance point at 0.8826, the lowest point on March 4. 

Using the Murrey Math Lines, the pair has moved to the bottom of the trading range. Also, it has formed a rising wedge pattern. Therefore, the pair will likely rise to the major S&R pivot point at 0.8850 and then retreat to the ultimate support at 0.8790.