EUR/GBP gains some positive traction on Monday and snaps a four-day losing streak.
Stronger Eurozone inflation data provide a modest lift to the euro and offer support.A combination of factors seems to underpin sterling and might cap gains for the cross.
The EUR/GBP cross attracts some buying near the 0.8575-0.8570 region on Monday and snaps a four-day losing streak to its lowest level since early September. The intraday uptick picks up pace following the release of stronger Eurozone consumer inflation figures and lifts spot prices back above the 0.8600 mark during the first half of the European session.
The latest data published by Eurostat showed that the annualized Eurozone Harmonised Index of Consumer Prices (HICP) accelerate to 10.7% in October from 9.9% in the previous month. Adding to this, the core figures climbed to 5.0% YoY during the reported month as compared to the 4.9% expected and 4.8% recorded in September. Separately, the first reading of the Eurozone GDP print showed that the economy expanded by 0.2% during the third quarter, matching consensus estimates. This, in turn, is seen as a key factor behind the shared currency’s relative outperformance against its British counterpart and offering some support to the EUR/GBP cross.
That said, a more dovish tone adopted by the European Central Bank last week – in the wake of the worsening economic outlook – continues to act as a headwind for the euro. The British pound, on the other hand, draws support from the latest optimism over the appointment of Rishi Sunak as the new UK Prime Minister. Market players see Sunak as someone who can bring stability back after the recent volatility in the markets. Adding to this, International Monetary Fund (IMF) Managing Director Kristalina Georgieva told Reuters that she expects the new UK PM Sunak to steer Britain towards a path of medium-term fiscal sustainability.
Apart from this, expectations for a 75 bps hike by the Bank of England warrant some caution for aggressive bullish traders and positioning for a further appreciating move for the EUR/GBP cross. Hence, any subsequent strength is more likely to confront stiff resistance and remain capped near the mid-0.8600s, which should act as a pivotal point for intraday traders. Some follow-through buying should push spot prices back above the 0.8700 mark and allow bulls to aim back to retest the 0.8750-0.8760 supply zone.
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