The EUR/GBP exchange rate surged to the highest level since October 2020 as the pound sterling crash accelerated. It rose to a high of0.9258, which was higher than last week’s low of 0.8213. The British pound index crashed to a multi-year low while the GBP/USD price fell to a record low as sellers targeted the parity level.
The EUR to GBP exchange rate rose sharply as investors continued worrying about the UK economy. This happened after the new administration led by Lizz Truss unveiled a new supply-side stimulus package worth over 45 billion pounds. It slashed taxes for companies, wealthy bankers, and the rich in a bid to spur investments.
While investors generally love lower taxes, they believe that the funding gap for the UK government will rise sharply in the coming months. As a result, they expect that public borrowing will hit over 190 billion pounds this year. In a statement, Larry Summers warned that the UK economy was slowly becoming an emerging market. Meanwhile, Nouriel Roubini, popularly known as Dr. Doom, warned that the UK will soon need an IMF bailout.
The EUR/GBP price also rose as investors anticipate steeper rate hikes by the Bank of England (BoE). It has already hiked 7 times since December last year and analysts expect that the situation will continue going forward.
The four-hour chart shows that the EUR to GBP exchange rate has been in a strong bullish trend in the past few days. On Monday, it continued going vertical as it rose to a high of 0.9300. As a result, it moved above all moving averages while the MACD surged. It also rose above the important resistance level at 0.8790.
Therefore, there is a likelihood that the pair will continue rising as the confidence of the UK economy wanes. If this happens, the next key level to watch will be at 0.9350. A drop below 0.900 will invalidate the bullish view.
This post was last modified on Sep 26, 2022, 04:08 BST 04:08