GBP/EUR has been on an upward trend against the Euro for six consecutive months. However, its recent recovery hit a barrier at 1.19, suggesting a potential pullback in the coming days. Last week, the Pound to Euro exchange rate climbed just above 1.19 before retreating, marking this level as a significant resistance point. At 1.19 GBP/EUR, there is notable support at 0.84 in EUR/GBP, which could attract some buying interest in the euro. On the Dollar, Cable managed to break through 1.32 last week and maintained some semblance of support in or around that level.
The RSI indicator is turning downwards, indicating waning momentum and the possibility of a downside movement soon. Despite this, the overall trend remains positive, and any pullbacks are expected to be minor. Support is now at 1.18, aligned with the 50-day moving average. We anticipate the exchange rate to stay above this level if new highs for 2024 are to be achieved in the coming weeks.
The Euro declined last week following lower-than-expected inflation data from Germany and Spain, increasing the likelihood of consecutive rate cuts by the European Central Bank in September and October. However, expectations for an October rate cut became less certain after Eurozone-wide CPI data released on Friday showed rising services inflation, indicating that the disinflation process might be stalling. If expectations for ECB rate cuts diminish further, the Euro could stabilize against the Pound.
With no major data releases from the Eurozone or the UK this week, the GBP/EUR exchange rate will likely be influenced by global risk sentiment. Typically, the Pound rises with positive sentiment and falls when markets retreat. This week is crucial for investors as the final U.S. payroll report before the Federal Reserve’s September interest rate decision is due. While a rate cut later this month is almost certain, the guidance will be key. For the Fed to consider further cuts, evidence of a cooling labour market is needed, making Friday’s report significant. A strong recovery in payroll data could cast doubt on additional rate cuts, potentially boosting the Dollar and impacting stocks negatively.
