EUR/GBP has been bearish since the beginning of July, as Euro weakness increased on deteriorating consumer and investor sentiment in the Eurozone. Moving averages were acting as support at the bottom, but they have turned into resistance and the 20 SMA (gray) has taken over recently, indicating decent selling pressure on this pair. We decided to open a sell forex signal here below this moving average, during the retrace higher yesterday ahead of the Bank of England meeting today.

The Bank of England meets in a while and expectations are 100% for a 25 bps hike and 845% for a 50 bps rate hike. In the last meeting, the Bank of England hiked rates by 25 bps to 1.25% for the fifth time in a row, in a move that was widely anticipated.

The UK headline inflation is expected to move into double digits and growth is expected to turn negative in 2023. This stagflationary environment has been weighing on the GBP for some time, but the Euro is in a worse position. Nonetheless, the GBP tumbled lower as the BOE outlook was negative, which sent EUR/GBP jumping higher.

EUR/GBP H4 Chart – MAs Have Turned Into Resistance

The 20 SMA is pushing EUR/GBP lower 

Bank of England Monetary Policy Decision – 4 August 2022

• BOE raises bank rate by 50 bps to 1.75%, as expected
• June BOE  rates were 1.25%
• Bank rate 9-0* vote vs 9-0 expected (*Tenreyro voted to raise rates by 0.25%)
• Labour market remains tight, domestic cost and price pressures elevated
• Estimates Q2 GDP to fall by 0.2% (June forecast was -0.3%)
• Sees Q3 GDP increasing by 0.4%
• Risks surrounding projections are exceptionally large at present
• Inflationary pressures are nevertheless expected to dissipate over time
• But there is a risk that a longer period of externally generated price inflation will lead to more enduring domestic price and wage pressures
• The policy is not on a pre-set path (leaving options to slow down with rate hikes)
• BOE will be particularly alert to indications of more persistent inflationary pressures, and will if necessary act forcefully in response
• Full statement