EURGBP News and Talking Points
– EURGBP trades at a ten-month low as the single currency continues to struggle against Sterling.
– Trade Weighted Sterling at post-Brexit high.
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EURGBP Chart Confirms Break Lower
A combination of a strong Sterling complex and a weaker Euro has seen EURGBP drop to levels last seen in May 2017 with further falls possible. UK trade weighted sterling hit its highest level since June 2016, while short-dated UK government bond yields continue to hit multi-year highs. The 2-year gilt trades with a yield of 0.936% compared to a 2-year German bond yield of -0.560%, a differential of just under 1.5%. The positive UK/German yield differential is supporting Sterling in a world of low interest rates and is being driven by expectations that the bank of England will hike rates at its next policy meeting on May 10. Current money market indicators show a 70% probability of a 0.25% UK rate hike next month. In comparison the market is currently showing a 96.85% that the ECB will keep interest rates unchanged at its next meeting on April 26.
IG Client Sentiment data show retail traders remain long EURGBP with little net positional change over the last week. While this data throws out a mixed trading signal, further declines in EURGBP may see traders change their positioning, adding to the move.
Sterling traders should be aware of important UK jobs and wages data released on Tuesday 17th, and a slew of inflation, retail and producer prices out on Wednesday 18th. Any further contraction of the inflation-wages spread will be welcomed by the central bank as the UK retail sector continues to suffer.
EURGBP is currently targeting the April 25-26 double at 0.85310, before 0.8320 and the April 18 2017 low of 0.83133. To the upside, the December 8 and January 25 lows around 0.86950 provide the first level of resistance.
EURGBP Price Chart Daily Timeframe (March 20 – April 13, 2018)
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— Written by Nick Cawley, Analyst