EUR/GBP rises above 0.8700 after BoE dovish stance and hawkish ECB

  • The Euro shoots up more than 100 pips against the British pound.
  • Lagarde, president of the ECB, opened the door to further rate hikes of 50 basis points in the upcoming meetings.
  • The Bank of England’s decision put an end to rate hikes of 75 basis points, although it expressed its commitment to control inflation.

The EUR/GBP cross rebounds as the American session progresses after the decisions of the Bank of England (BoE) and the European Central Bank (ECB) to raise rates 50 basis points each in their last monetary policy meetings of 2022. At the time of writing, The Euro (EUR) has gained ground against the British Pound (GBP) and is trading at 0.8705above its opening price by 1.30%.

The ECB and the BOE raised rates 50 basis points

Risk Aversion keeps EUR/GBP higher. The ECB decision to raise rates 50 basis points It was widely expected, but Quantitative tightening (QT) announcement surprised markets. The ECB’s QT will start in March 2023 at a rate of €15bn, and will last until the second quarter and will be fixed on a rolling basis. The ECB updated its inflation forecasts for 2024 and 2025, expecting them to be at 3.4% and 2.3%, respectively. Due to upward revisions to inflation, the ECB stated that rates would still have to rise “significantly more”.

For her part, ECB President Christine Lagarde stated that it was “obvious” to expect rate hikes of 50 basis points for some time, and added that in February, March and April there could also be a 0.50% rise in the deposit facility. Following Lagarde’s statements, market prices place the ECB terminal rate at around 3%.

On the other hand, the Bank of England raised rates by 50 basis pointssituating the Bank Rate at 3.50%, as expected by analysts. The decision was not unanimously approved., split 7-2, as BoE members Tenreyro and Dhingra opted to abstain, while Catherine Mann voted for a 75 basis point rate hike. The Bank of England has signaled that further rate hikes may be needed to reach its 2% target. They added that “should the outlook suggest more persistent inflationary pressures, I would respond forcefully, as necessary.”

EUR/GBP reaction

After the decisions, the EUR/GBP Extended Gains on Perceived ECB “Aggressiveness”, while the BoE reiterated in its previous meeting that the terminal rate was substantially lower than what the markets were pricing. Since the decision, EUR/GBP rose from 0.8610 to 0.8723.

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EUR/GBP technical levels

EUR/GBP

Overview
Last price today 0.8713
Today I change daily 0.0117
today’s daily variation 1.36
today’s daily opening 0.8596
Trends
daily SMA20 0.8626
daily SMA50 0.8677
daily SMA100 0.8636
daily SMA200 0.8551
levels
previous daily high 0.8617
previous daily low 0.8576
Previous Weekly High 0.8646
previous weekly low 0.856
Previous Monthly High 0.8828
Previous monthly minimum 0.8572
Fibonacci daily 38.2 0.8592
Fibonacci 61.8% daily 0.8602
Daily Pivot Point S1 0.8576
Daily Pivot Point S2 0.8555
Daily Pivot Point S3 0.8534
Daily Pivot Point R1 0.8617
Daily Pivot Point R2 0.8638
Daily Pivot Point R3 0.8658

Source: Fx Street

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