The EUR/GBP exchange rate remained in a tight range on Thursday morning ahead of the crucial European Central Bank (ECB) decision. The pair was trading at 0.8565, where it has been in the past few weeks. This price is below the 4.25% below the highest point in 2023.
ECB interest rate decision aheadThe EUR/GBP exchange rate will be in the spotlight on Thursday as the European Central Bank delivers its third decision of the year.
Economists expect that the bank will maintain rates unchanged at its all-time high of 4.50%. It will then hint that a rate cut will happen soon, possibly in June this year.
The ECB is having some success in its battle against inflation. The most recent preliminary data revealed that Europe’s inflation retreated to 2.4% in March, meaning that it is approaching the ECB target of 2.0%.
Some EU countries like Italy, Cyprus, Latvia, and Finland have had their prices drop below 2%. Germany’s inflation stood at 2.3% while the French one came in at 2.4%.
At the same time, the European economy is not doing well, with many companies and individuals blaming the tight financial conditions as liquidity retreats. Therefore, a rate cut will help the economy recover. In a note, a Bloomberg economist said:
“With wage growth cooling, corporate profit margins in check and headline inflation undershoot creeping into view, the ECB will soon cut rates. But since the cost of being caught out by a resurgence of inflation would be high it’s understandable that the Governing Council is being cautious.”
Therefore, the EUR/GBP pair will be driven by the price action of the euro since there will be no major data from the UK. The next key UK data will come out on Friday when the UK will publish the February GDP data.
Economists believe that the British economy continued its slow recovery in February. They see the GDP expanding by 0.1% during the month.
Broadly, the expectation is that the Bank of England will also start cutting rates in June if inflation continues falling.
EUR/GBP technical analysis
The EUR/GBP exchange rate has moved sideways in the past few days. On the daily chart, the pair has formed a rising wedge pattern, which is usually a bearish sign. The pair has also formed an inverse cup and handle pattern, which is a sign of a bearish continuation.
Therefore, the pair will likely continue falling in the coming weeks as bears target the lower side of the cup and handle pattern at 0.8500. A break below that price will point to more downwards in the coming weeks.
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