The British pound continued to weaken against the euro as investors scaled backed expectations for a rate hike by the Bank of England, and the decline in the interest rate outlook may keep the EUR/GBP range-bound over the near-term as market participants weigh the outlook for future policy.
Currency Pair: EUR/GBP
Chart: 60 Min Charts
Short-Term Bias: Flat
Analysis
The British pound continued to weaken against the euro as investors scaled backed expectations for a rate hike by the Bank of England, and the decline in the interest rate outlook may keep the EUR/GBP range-bound over the near-term as market participants weigh the outlook for future policy. After reaching a low of 0.7694 in October, the euro-pound jumped to a high of 0.9805 in December as BoE Governor Mervyn King took unprecedented steps to stimulate the ailing economy however, the lack of momentum to push back above 0.8750-60 (50.0% Fib) is likely to keep the pair within a narrow throughout the month as the BoE and ECB maintain a dovish outlook for inflation. Nevertheless, Credit Suisse overnight index swaps shows investors anticipate interest rates in the U.K. to rise faster than the rates in the euro-region as ECB President Trichet forecasts economic activity to remain subdued going into the following year, and the EUR/GBP may continue to find support at 0.8500-10 (61.8% Fib) as market participants speculate the BoE to tighten policy over the next 12 months. Over the next few hours of trading, we may see the pair continue to hold the rising trend carried over from the previous week as the economic docket for the U.K. is expected to show a drop in the CPI however, a higher-than-expected inflation reading could lead the pair to retrace the advance from earlier this week, and may cross back below the 120-SMA (0.8606) to work its way towards 0.8550. Be sure to check out other Technical Reports from DailyFX for additional information on the major currency pairs.
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