EUR/GBP Price Rebounds from a Multi-Week Low- What’s Next?

Gradual UK Interest Rate Cut

UK GDP data showed a notable increase, with first-quarter growth reaching 0.7%, compared to expectations of just 0.6%. However, the most significant factor for the pound’s performance in the coming period may be the UK-EU summit, which could result in enhanced coordination between the two economies and the potential for improved trade relations post-Brexit.

Expectations suggest the Bank of England may cut interest rates three times this year. However, high service sector inflation and a slow decline in British wage levels are limiting the Monetary Policy Committee’s ability to accelerate the pace of rate cuts.

Further European Interest Rate Cuts

Markets are also awaiting the release of European GDP data for the first quarter, which is expected to show stronger growth than the 0.2% recorded in the previous quarter, potentially reaching 0.4%.

Despite this anticipated improvement, the European Central Bank has several reasons to continue cutting interest rates. These include the possible negative impact of new U.S. tariffs on European economic performance and the ongoing need to stimulate growth. Additionally, the recent drop in energy prices is pushing inflation lower across Europe, further supporting the case for continued monetary easing. As a result, markets expect at least two more interest rate cuts by the ECB before the end of the year.

At the same time, members of the ECB Governing Council will need to factor in the growing trend among European governments (led by Germany) to raise borrowing and spending limits, including discussions about allocating 5% of European GDP to military expenditures.

EUR/GBP Prices Are Moving in a Downtrend

At the end of last month, the pair began a downtrend, forming a lower high and a lower low. Last week, this trend accelerated, with prices closing below the 50-day moving average. This week, the pair rebounded from its lowest level since early April at 0.8389, yet the price remains biased toward the low end of the current trading zone, residing between 0.8384 and 0.8595.

A daily close below the low end of the trading zone suggest a strong bearish momentum and could drive the pair to trade even lower toward 0.8222. In that scenario, the support area between 0.8277 and 0.8246 should be considered.

Levels to Watch in the Opposite Scenario

If prices fail to close below the low end of the trading zone, this suggests weakening bearish momentum and a possible correction toward the high end of the current trading zone located at 0.8595.

A daily close above the high end of the zone would be seen as a signal of a new upward trend, with prices potentially heading toward 0.8852. In such a scenario, resistance levels at 0.8640, 0.8720, and 0.8811 should be monitored along the way.

EUR/GBP price – Daily Chart

Chart Source: ADSS Platform