The euro returns to 0.8480 area after failure at 0.8520.
BoE rate hike expectations are supporting the pound.
EUR/GBP is trading above a key support area at 0.8471/49 – Commerzbank.
The euro has found support at 0.8480 area following a reversal from 0.8520 earlier today. Broadly speaking, the pair is licking its wounds, clinging right below 0.8500 after having lost nearly 2% over the previous two weeks.
The British pound has remained fairly firm in October, supported by expectations that the Bank of England will lead the rest of the major central banks in raising interest rates after the COVID-19 crisis. Some market sources are anticipating an interest rate hike early next year, with other hikes to follow, in an attempt to tackle inflationary pressures.
Furthermore, the euro remains on the defensive on rising concerns about inflationary pressures and supply bottlenecks thwarting the post-pandemic recovery. The macroeconomic docket has supported those fears on Tuesday, with the German ZEW economic sentiment index deteriorating for the fifth consecutive month.
According to Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, breach of 0.8471/49 support would renew bearish pressure: “EUR/GBP is under pressure near term following last week’s failure just ahead of .8671, the July 2021 high. The market has reacted back to key support at .8505/00, the lows from mid-July, and these are exposed and failure here will target key support is .8471/49, the recent low and lows since 2019. We again look for these to hold the downside.”