EUR/GBP tests the 50-DMA around 0.8550 on the back of a hawkish BoE
- EUR/GBP trades range-bound around the 0.8550-60 range.
- Positive risk appetite and hawkish Bank of England support the British pound.
- EUR and GBP CFTC Positioning data could give us clues about the trend direction.
During the New York session, the EUR/GBP is trading at 0.8553, down 0.31% at the time of writing. The single currency is recovering from a European session dip to the 0.8540 area, as the Bank of England released its monetary policy statement and the meeting minutes.
As the day progresses, the market sentiment is positive. The S&P 500 is up 1.31%, with the US 10-year benchmark rate is rising seven basis points (bps), sitting at 1.405%. Meanwhile, the US dollar is down almost half percent, with the US Dollar Index (DXY) clinging to 93.00.
On Thursday, the European economic docket was full with PMI September releases. The Markit Manufacturing PMI came at 58.7, worse than the 60.3 expected. Further, the Markit Services PMI rose to 56.3, trailed the 58.5 foreseen by economists. Additionally, the Markit PMI Composite increased to 56.1, lower than 58.5 awaited by analysts.
Even though the data was awful than expected, the market’s reaction was muted, as the EUR/GBP traders awaited the Bank of England monetary policy decision for fresh impetus.
EUR/GBP dropped 40 pips on a Bank of England hawkish statement
On Thursday, the BoE’s Monetary Policy Committee (MPC) released its monetary policy statement. The MPC left overnight rates and QE unchanged by unanimous votes, but the vote to keep the Asset Purchasing Programme target at 875B passed with a 7-2 vote. The two dissenters were Dave Ramsden and Michael Saunders, who voted for an early end of the program by decreasing in 30B the purchases, with a target of 840B.
The minutes of the MPC meeting revealed that discussions about inflation showed that might not be as transitory as expected. Further, it highlighted the uncertainty around the labor market regarding wages inflationary pressures due to labor shortage.
The EUR/GBP was trading around 0.8585 before the MPC statement. When it was released, it dropped to around 0.8540.
On Friday, the European and British economic dockets are empty. However, the CFTC Commitment of Traders report, released each Friday of the week, could give us the institutional and CTA’s market positioning regarding both currencies.
KEY TECHNICAL LEVELS TO WATCH