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EUR/GBP - UK and EU Clash Horns

Today the Euro sees its strongest bullish movement against the Pound since 5th May 2022. During this morning’s Asian and European sessions the EUR/GBP pair increased by 0.83% to 0.8639, hitting a 9-month high. The price trend has mainly been influenced by today’s economic releases which continue to show a dampened economy as well as new political disagreements between the UK and EU.

The price of the EUR/GBP has found resistance at the 0.8592 mark on four occasions over the past 2 weeks, but managed to form a bullish breakout with strong momentum and determination. The price has not yet shown signs of a retracement as buyers remain firmly in control, however, traders are keeping in mind that this may become a possibility as retracement can form after “higher highs” and high volatility.

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One of the main drivers for the Pound declining in value are the statistics showing that the economic growth is significantly slowing while inflation remains high. The UK economy slowed down by 0.3% in April, which led to a decrease in the growth rate to 0.2% QoQ.

The negative dynamics harmed the annual GDP, which fell to 3.4% in 12 months from 6.4% earlier. Additionally, today's macroeconomic data did not reassure investors regarding the British economy. Firstly, the unemployment rate rose to 3.8% from 3.7% in March, and the Claimant Count Change decreased by only 19,700 instead of the expected 49,400 against the background of correction of the average level of wages to 6.8% from 7.0% a month earlier.

With regards to the political picture, the Pound could struggle further as the UK Government looks to clash horns with their European counterparts over certain agreed Brexit conditions. The UK has advised that they will no longer continue with certain conditions and checks at the Irish border. According to the UK, the move is legal but the EU has maintained its position that the British government is simply looking for a loophole. However, the EU has advised it would launch legal action for violating the rules. A large majority of members based in the Northern Ireland assembly also accused the UK's Prime Minister of being reckless by destabilizing the agreement.

The price movement is also likely to be strongly influenced by this Thursday’s scheduled events with the Bank of England. The central bank is scheduled to vote on the new possible policy alterations as well as conduct a press conference with the public where journalists will be able to ask direct questions.

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It is predicted that the central bank will increase interest rates by 25 basis points but it should be noted by traders that this has already been priced into the exchange rate. However, the monetary statement and press conference does have the ability to create high volatility and strong price movements. Traders will be strongly anticipating these developments.

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