What is in store for EUR/GBP now as the BOE cuts rates ahead of the ECB?
It is going to be a tricky next few sessions for EUR/GBP as the BOE throws a curve ball to the market with its surprise decision today. Let's try and split this into a few pointers:
- The market had already priced in a ~38 bps rate cut this month by the BOE
- Hence, pound weakness is likely to be limited as this isn't a huge "trapdoor"
- There is still the UK budget announcement later today
- Coordinated fiscal and monetary boost is good for the pound in the bigger picture
- ECB to be called into action tomorrow
- Whatever their decision will be, it isn't worth anything close to 50 bps
- Rates pressure could help boost the euro further, similar to EUR/USD
As things stand, I would argue that any real upside for EUR/GBP hinges on a firm break above 0.8800 or the 50.0 retracement level.
Buyers have done well to break above the 200-day MA (blue line) after having seen recent price action stall there, but as pointed out above, the market may have a reason to be more upbeat over the pound in the medium-term amid coordinated stimulus measures.
There is no doubt that there is some coordination going on as the BOE announced these measures with the government set to announce fiscal stimulus as well later today.
The pound may still encounter some near-term weakness as the weight of the 50 bps rate cut sinks in. That could potentially push EUR/GBP towards 0.9000 but again, I would argue it depends on a firm break above 0.8800 and what the UK government as well as the ECB decides on over the next two days.
