MAs Keeping EURGBP Down As ECB’s Lagarde Turns Dovish on Softer Euro Inflation

Sellers continue to remain in charge in EURGBP, as it keeps making lower lows, falling to the lowest level in more than 2 years. Today we had the Eurozone inflation, which came after softer CPI numbers from major European countries, which have forced the ECB to turn dovish, as president Lagarde’s comments suggested, which sent the Euro lower.

The policy divergence between the European Central Bank (ECB) and the Bank of England (BOE) has been a key factor in the recent EUR/GBP decline to 0.83. While the ECB is in the middle of a monetary easing cycle, having already reduced rates by 25 basis points twice, the BOE, after an abrupt 25 bps rate cut, has paused further rate reductions. This difference in approach contributed to the bearish trend in EUR/GBP.

EUR/GBP Chart H4 – MAs Acting As Resistance

In her recent comments, ECB President Christine Lagarde hinted at further rate cuts, solidifying expectations for a rate reduction in October. The market has already priced in this anticipated cut, which explains why EUR/USD has failed to break the 1.12 level. As the ECB is expected to lower rates to 1.75% over the next year, the market is pricing in steady 25 bps cuts, with the potential for a larger 50 bps cut if needed. EUR/GBP continues to form lower highs, recently hitting its lowest point since April 2022

ECB President Christine Lagarde’s Comments:

• Economic Recovery Facing Challenges: Lagarde acknowledged that some survey indicators point to difficulties in the ongoing recovery. However, she expressed confidence that inflation is on track to return to the ECB’s target in a timely manner, which will be considered in the upcoming October meeting.
• Labor Market Resilience: Despite a slowdown in employment growth to just 0.2% in Q2 and expectations of further deceleration, Lagarde emphasized that the labor market remains resilient. She expects the recovery to strengthen over time.
• Inflation Outlook: The next inflation reading is likely to come in below the ECB’s baseline projection, but this won’t prevent the ECB from acting. Lagarde clarified that the ECB won’t wait for inflation to reach exactly 2% before reducing rates.
• Banking Sector Consolidation: Lagarde welcomed efforts to enlarge and strengthen banks, particularly through cross-border mergers, while also cautioning that such mergers carry risks. The decision to pursue mergers lies with the undertakers, who must evaluate whether the benefits outweigh the risks.

EUR/GBP Live Chart