- The single currency trims losses from two consecutive days, despite the BoE’s outlook for a rate hike.
- ECB Christine Lagarde reinforces that “inflation is largely transitory”.
- Divergence between the ECB and BoE could benefit sterling against the single currency.
- EUR/GBP: To extend its fall towards the 0.8385 mark – SocGen.
EUR/GBP recovers from two straight days of losses, up 0.27% and trading at 0.8457 during the U.S. session at the time of writing. Market sentiment is positive despite rising inflationary pressures, negative macroeconomic data from China, and tighter monetary policy. The major U.S. stock indices gained between 0.16% and 0.76%. However with the exception of the Dow Jones Industrials, which declined 0.15%.
Divergence between the European Central Bank and the Bank of England boosts GBP vs. EUR
On Saturday, October 16, ECB President Christine Lagarde said that “inflation is largely transitory” after delivering the 2021 Per Jacobsson Lecture at the IMF. Lagarde said the ECB is paying “close attention” to wage negotiations and other effects that may permanently boost prices.
Over the weekend, Bank of England Governor Andrew Bailey reiterated that the bank would have to act to curb inflationary pressures.
The October Rightmove House Price Index presented on the UK economic docket. Which grew 1.8% and 6.5% month-over-month and year-over-year, respectively, over the previous reading.
That said, central bank policy divergence appears to favor sterling. The move from the October 10 high at 0.8517 to the October 15 low at 0.8422 indicates that downward pressures are building on the pair on expectations of a Bank of England rate hike, which could boost sterling against the shared currency.
EUR/GBP: to extend its decline towards 0.8385 – SocGen
According to Société Générale, a close below 0.8450 on Friday suggests that bearish momentum persists in the EUR / GBP pair: “Holding below 0.8550, EUR / GBP may move lower towards projections around 0.8380.”
“The lower band of the consolidation zone since 2016 at 0.8300/0.8270 and 0.8200 represents the next significant support level.”