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EURGBP Market Update

3/3/2023 11:05 AM

The EUR/GBP pair shows mixed trading dynamics, holding during the Asian session near 0.8860.

The day before, the statistical office of the European Union (Eurostat) published a report on the dynamics of consumer prices in February: in annual terms, the indicator corrected from 8.6% to 8.5%, while analysts expected a slowdown to 8.2%, and in monthly terms it accelerated by 0.8% after -0.2% in January against the forecast of -0.3%, while the Core CPI added 0.8% MoM and 5.6% YoY, which was higher than preliminary estimates at 0.0% MoM and 5.3% YoY. In general, inflationary pressure in the European economy remains significant, and the Core CPI is even rising again, which contradicts the latest comments of European Central Bank (ECB) officials who claimed that the process of price correction has already begun. Against this backdrop, analysts are expecting a 50 basis point interest rate hike at the March meeting of the regulator, and many are now confident in a similar increase in the value in May.

The pound, in turn, remains under pressure since Wednesday after the comments of the Governor of the Bank of England Andrew Bailey about the prospects for further growth in borrowing costs. The official noted that the final decision has not yet been made, and the regulator, when choosing the vector of monetary policy, is guided by a combination of factors that have developed in the economy. It is expected that in March the interest rate will be changed by 50 basis points.

In the meantime, the Bank of England is confident that the digital pound will become an effective means of protecting investors and will improve the conduct of payments and settlements. According to the Bank of England Deputy Governor Jon Cunliffe, one of the reasons the government had to bail out the country's biggest lenders, including Northern Rock and the Royal Bank of Scotland, during the 2008 financial crisis was that about 60% of customer funds were blocked on deposit accounts, which became a signal for investors that the banking system was not stable. At the moment, representatives of the Bank of England and the British Treasury are studying the potential of the digital pound, as well as the regulatory rules that should apply if it is launched, which, according to preliminary forecasts, will take place no earlier than 2025. A central bank digital currency (CBDC) will allow people to store funds on devices such as smartphones without the need for a bank account.

Bollinger Bands in D1 chart show insignificant growth. The price range is almost constant, remaining rather spacious for the current level of activity in the market. MACD indicator is growing, while preserving a rather stable buy signal (located above the signal line). The indicator is also trying to consolidate above the zero level again. Stochastic retains an uptrend, but is located in close proximity to its highs, which points to the risk of overbought euro in the ultra-short term.

Resistance levels: 0.8900, 0.8938, 0.8977, 0.9000. | Support levels: 0.8854, 0.8817, 0.8777, 0.8750.

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