EUR/GBP moves away from multi-week low, lacks bullish conviction and remains below mid-0.8500s
- EUR / GBP seeks to build the Friday rebound in the district of 0.8500.
- The hopes of a British-American trade agreement promote GBP bulls and could cap the cross.
- Divergent political expectations of the BOE-ECB could act more like a headwind.
The EUR / GBP cross attracts certain buyers during the Asian session on Monday, although there is a lack of bullish conviction and remains close to a hollow of almost three weeks around the 0.8510 region affected on Friday. The cash prices are currently negotiated just below the middle of 0.8500, up less than 0.10% for the day.
The relative underperformance of the British book (GBP) against its European counterpart could be attributed to the comments of the British finance minister Rachel Reeves, declaring that the British government is not in a hurry to conclude a trade agreement with the United States. This, in turn, is considered a key factor acting as a rear wind for the EUR / GBP cross. Investors, however, hope that the United Kingdom will conclude an agreement with the United States.
Adding to this, the data published on Friday showed that retail sales in the United Kingdom increased unexpectedly by 0.4% in March after revised downward growth in the previous month of 0.7%. This, as well as the expectations that the Bank of England (BOE) will reduce interest rates more slowly than other large central banks, including the European Central Bank (ECB), should limit GBP losses and cap the benefits for the EUR / GBP cross.
The ECB earlier this month warned that economic growth would take a big blow from American prices and strengthened the case for more relaxation of policies in the coming months. This, in turn, guarantees a certain caution before placing new bruise bets around the EUR / GBP cross and confirming that the recent corrective decline in zone 0.8735-0.8740, or the highest level since November 2023 hit earlier this month, has followed its course.
Pound Sterling Faqs
The pound sterling (GBP) is the oldest currency in the world (886 after JC) and the official currency of the United Kingdom. This is the fourth most negotiated unit for currencies (FX) in the world, representing 12% of all transactions, with an average of $ 630 billion per day, according to 2022 data. Its key trading pairs are GBP / USD, also known as “cable”, which represents 11%of FX, GBP / JPY or “Dragon” as it is known by merchants (3%) and EUR / GBP (2%). The Sterling book is issued by the Bank of England (BOE).
The most important factor influencing the value of the pound sterling is the monetary policy decided by the Bank of England. The BOE bases its decisions on the question of whether it has achieved its main objective of “price stability” – a constant inflation rate of approximately 2%. Its main tool for achieving it is the adjustment of interest rates. When inflation is too high, the BO will try to curb it by increasing interest rates, which makes people more expensive for people and businesses to access credit. This is generally positive for GBP, because higher interest rates make the United Kingdom a more attractive place for global investors to park their money. When inflation falls too low, it is a sign that economic growth slows down. In this scenario, the BOE will plan to reduce interest rates to object to the credit so that companies will borrow more to invest in growth generating projects.
Data versions assess the health of the economy and can have an impact on the value of the pound sterling. Indicators such as GDP, Manufacturing and Services PMI and employment can all influence the management of the GBP. A strong economy is good for the pound sterling. Not only does it attract more foreign investment, but it can encourage BOE to establish interest rates, which will directly strengthen GBP. Otherwise, if the economic data is low, the pound sterling is likely to decrease.
Another important version of data for the Sterling book is the trade balance. This indicator measures the difference between what a country gains from its exports and what it spends in imports over a given period. If a country produces highly sought -after exports, its currency will only benefit from the additional demand created from foreign buyers seeking to buy these goods. Consequently, a positive net trade balance reinforces a currency and vice versa for a negative balance.
