Today our focus will remain on Europe as we take a look at the EUR/GBP currency pair. Last week the exchange rate of this pair dropped to its lowest level in about one month, but over the past few days we have observed nothing but growth in the rate of this pair. Still, the level of 0.86 still presents a bit of a challenge.
At the moment, it appears that the British pound sterling might continue to yield ground to the European single currency. Despite the high vaccination rate in the United Kingdom, the country is still experiencing widespread outbreaks of Covid-19, which are affecting businesses and the economy at large. For example, today the UK published flash PMI data for September and all of the reports were worse than the markets had expected. The Bank of England is meeting today to decide whether to tighten its monetary policy, and although this seemed more likely a month ago, the latest fundamentals from the UK show that it might be too early to turn hawkish. A commitment to prolonged dovishness today could likely weaken the pound.
As for the European single currency, it might very well be facing the same fate. Covid-19 still poses a huge problem for the European Union, where vaccination rates are lower than in the UK. Recent fundamental reports have shown that economic growth is slowing down in the bloc again. Similar to the UK, today’s flash PMIs for the eurozone also disappointed investors, though they were higher than the UK’s numbers. But unlike the pound, the euro is already accustomed to a soft monetary policy by the ECB, since the central bank remained firm in its conviction that prolonged stimulus will be necessary to support the economy even after inflation climbed to 3%, well above the ECB’s target level. Thus, though both the Bank of England and the European Central Bank are set to remain dovish, the euro might already have that priced in, while the pound doesn’t. Out of the two risky currencies, the euro appears more resilient at the moment.
In terms of the daily chart, today we have a pivot point for the pair located at 0.8587, with the pair currently trading below it. The daily support levels lie at 0.8559 and 0.8545. The daily resistances are at 0.8602 and 0.8629. The indicators of technical analysis are a bit mixed but ultimately recommend a buy position today.
