The EUR/GBP cross has calmed above the 0.8600 mark, with the cross now around 0.8605 on Thursday. The British Pound went up sky-high after the United Kingdom released better-than-forecasted Gross Domestic Product (GDP) numbers. At the same time, the Euro was under pressure from a string of disappointing recent data out of the Eurozone. Earlier today, EUR/GBP plunged to a two-month low of 0.8596. It soon reversed most of that loss thanks to help from the psychological level of 0.8600.
Later on Wednesday, the UK announced that its GDP expanded by 0.4% in June — a blowout figure that far exceeded analysts’ expectations. This welcomed economic indicator strengthened the British Pound, further accelerating its gains against the Euro. The Eurozone’s Q2 GDP growth was in line with expectations, with a weak 0.1% rise. June’s industrial production numbers just surprised with a huge negative -1.3% drop from the month before.
Recent gains in the EUR/GBP exchange rate are starting to suggest some major volatility could be on the way. Market participants are anticipating CPI readings from the UK and Eurozone next Wednesday. Analysts believe that this upcoming data could significantly influence monetary policy outlooks for both the Bank of England (BoE) and the European Central Bank (ECB).
The ECB has kept an unusually dovish stance for all the confusing news coming from member states. Despite Eurozone GDP data coming in more or less on target, the unexpected drop in industrial production leads to deserved worries about forthcoming economic slowdowns. Against this backdrop, investors might be tempted to reconsider their outlook for additional ECB interest rate hikes.
The British economy continues to defy the doomsayers with remarkable resilience. June’s vigorous GDP growth could force the Bank of England to go even harder on the hawkish side with the tightening in order to address the mounting inflationary pressures. Watchers of the market will be looking to see how this macro inflation data informs overall market sentiment and trading strategy in the days ahead.
The EUR/GBP has found its footing above the EUR/GBP 0.8600 psychological support level. Further, this represents the first time that traders have expressed confidence that this floor will remain in place. Yet, with high-frequency economic indicators swinging widely and critical seller inflation data on the horizon, traders on Wall Street are still skittish about staying positioned.
Regardless of how it happened, both these currencies find themselves in the midst of a challenging and radical economic time. Going forward, fundamental data will be key in determining the future trajectory of the EUR/GBP cross. The conflict between UK economic wellbeing and Eurozone influence will remain ever-present in determining the politics of this currency union.