EURGBP Tests the Lows After the ECB Rate Cut
In the EURGBP, sellers have maintained control as the pair reached its lowest level in nearly two years, targeting the 0.83 mark again after the ECB rate cut earlier today. This area has formed a support zone, and we saw a 50-pip recovery earlier this week. Ahead of the ECB’s rate decision today, the price failed at the moving averages, so the rally was capped by resistance at the 20-day SMA (gray), today came the bearish reversal, helped by Christine Lagarde.
Eurozone inflation trends, which have been weaker due to lower CPI readings from key European countries, have prompted the ECB to take a more dovish approach, as previously mentioned by President Lagarde. While market sentiment was mixed on the extent of Lagarde’s dovishness, a 25 basis point rate cut has been widely anticipated for today’s decision.
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EUR/GBP Chart Daily – The 20 SMA Keeping the Pressure to the Downside
The European Central Bank’s policy messaging remains largely consistent, apart from the actual rate cut. They briefly mentioned “recent downside surprises” in economic indicators, which seems to be their rationale for implementing today’s rate reduction after the 25 bps cut in the last meeting. Market expectations suggest that traders are pricing in additional cuts, with a forecast of roughly 122 basis points in rate reductions by June next year. This would imply a series of 25 basis point cuts at each meeting, beginning with another anticipated reduction in December.
ECB Monetary Policy Decision – 17 October 2024
- ECB Deposit Facility Rate: Held at 3.25%, as expected (prior 3.50%)
- Main Refinancing Rate: Maintained at 3.40%, as expected (prior 3.65%)
- Marginal Lending Facility Rate: Set at 3.65% (prior 3.90%)
- Disinflationary Progress: ECB notes disinflation is progressing as anticipated.
- Inflation Outlook: Affected by recent downside surprises in economic activity indicators.
- Future Inflation: Expected to rise in the near term before declining toward target next year.
- Policy Approach: ECB to maintain a data-dependent, meeting-by-meeting strategy for policy decisions.
- Rate Path: No pre-commitment to a specific rate path, decisions to hinge on inflation outlook and incoming data.
The Euro tumbled around 30 pips lower after the rate cut by the ECB, but the market was holding the breath for Lagarde’s statement. However, the comments from her speech are sounding dovish as well, confirming the economic weakness in the Eurozone, which is pushing the Euro further down, with EUR/USD approaching 1.08 while EUR/GBP has lost around 50 pips.
EUR/GBP Live Chart
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