Dec 14, 2023

On Thursday, the EURGBP had interest rate decisions from the European Central Bank and Bank of England. 

EURGBP-–-Daily-Chart

EURGBP – Daily Chart 

EURGBP trades at 0.8617 with support at 0.8550 and 0.8518. There is a longer path to resistance at the 0.8750 level. 

Analysts said the European Central Bank is expected to cut its growth and inflation forecasts but leave interest rates unchanged at its meeting in Frankfurt. 

Analysts expect the ECB will leave its key interest rate unchanged despite signs of progress in its fight against inflation. The European economy is lurching toward the first recession since the pandemic. According to Bloomberg, the economy is expected to shrink for a second straight quarter in the final months of the year. 

The 0.1% contraction expected between September and December is lower than the previous projection for output to be unchanged. 

Morgan Stanley analysts expect the ECB will cut its GDP growth projection for 2023 down from the 0.7% figure released in September to 0.5%. The bank expects the ECB to lower its 2024 guidance from 1.0% to 0.8% while leaving its 2025 predictions unchanged. 

“Despite all the good news on the inflation front, the ECB is likely to remain cautious,” Morgan Stanley analysts led by Jens Eisenschmidt said.

Recession fears also returned to the UK on Wednesday as official figures showed that GDP unexpectedly fell 0.3%. That should underline investors’ expectations that the BoE will hold steady on interest rates at 5.25% as they did last month and may even start to discuss rate cuts like the Fed. 

City economists had expected output to be flat for the month, with one analyst saying the recession warning indicators were “flashing red” once again. The country’s monthly slump was worsened by extreme weather, so the economy has not advanced over the last three months. 

ONS director Darren Morgan said: “Our initial estimates suggest that GDP growth was flat across the last three months. Increases in services, led by engineering, film production and education — which recovered from the impact of summer strikes — were offset by falls in both manufacturing and housebuilding”. 

Traders should look at the market reaction after the central bank decisions at 8pm HKT Thursday and 9:15 pm as they could define the trend for the week ahead in EURGBP. 

Germany also has important manufacturing figures at 4:30 pm HKT on Friday, hoping for a 43.2 improvement over last month’s 42.5 figure.

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