EUR/GBP: EUR to GBP Forecast Ahead of ECB Rate Decision

Summary:
• The EUR to GBP exchange rate has bounced back this week as investors wait for the latest interest rate decision by the European Central Bank

The EUR to GBP exchange rate has bounced back this week as investors wait for the latest interest rate decision by the European Central Bank (ECB). The EUR/GBP has also risen ahead of the latest UK consumer and producer inflation data. It is trading at 0.8515, which is about 1.33% above the lowest level this week.

ECB decision and UK inflation data

The EUR to GBP price has had several catalysts this week. First, there is hope that Mario Draghi’s government will not crumble in Italy. Last week, the former ECB chair submitted his resignation, which was rejected by the Italian president. 

This week, some members of the Five Star Movement have expressed their support. Investors believe that Draghi’s reforms in Italy will go a long way to reshaping the country.

Second, the EUR/GBP price has risen because of the important economic data from the UK. On Tuesday, data by the Office of National Statistics (ONS) showed that the country’s unemployment rate remained unchanged at 3.8%. The labor market is extremely strong, with he participation and wages rising steadily.

The ONS will publish the latest UK consumer inflation data on Wednesday. Analysts expect the data to reveal that the country’s inflation rose to a multi-decade high of 9.1% in June. Core inflation is expected to have dropped slightly in the same period. In a statement on Tuesday, BoE’s Andrew Bailey said that the bank will likely increase interest rates by 0.50% in August.

The next catalyst for the EUR to GBP exchange rate will be the upcoming interest rate decision by the ECB. The bank is expected to deliver its first interest rate hike in more than a decade this week. Some analysts expect that the bank will hike by 50 basis points.

EUR to GBP forecast

The four-hour chart shows that the EURGBP exchange rate formed a hammer pattern last week. In price action analysis, this pattern is usually a bullish sign. The pair has then managed to move above the 25-day and 50-day moving averages. The two averages have crossed over while the Relative Strength Index (RSI) has tilted upwards. 

Therefore, the EUR to GBP exchange rate will likely keep rising ahead of the upcoming ECB decision. If this happens, the next key level to watch will be at 0.8600. The stop-loss for this trade is at 0.8500.