The rate of EUR to GBP has been falling for 3 years, but yesterday we saw a decent jump after the BOE, which broke the recent downtrend in EUR/GBP. The Bank of England joined the ECB and other central banks in their policy easing projections, with markets expecting a rate cut from them soon.

EUR/GBP Daily Chart – The 50 SMA Is Now Broken

EUR/GBP has been experiencing a sustained negative trend for more than three years, characterized by lower highs, indicating a persistent bearish sentiment. Despite repeated attempts by buyers to reverse the trend, they have been consistently met with resistance from sellers, with moving averages playing a role in this dynamic, but yesterday we saw a break of the 50 daily SMA (yellow).

However, following the release of UK consumer inflation data yesterday, the EUR/GBP cross attracted some decent buying, leading to a new daily high of 0.8585. This bullish move took spot prices close to this month’s high as this forex pair has conitnued to trade in a familiar trading range that has been in place since the middle of January.

Earlier last week, EUR/GBP encountered resistance at its 50-day simple moving average (SMA) of 0.8550. However, there were indications of a potential bullish rise following softer UK salaries and employment numbers, followed by this week’s softer UK CPI inflation and yesterday’s miss in UK services. This was evident as the price remained close to the 50 SMA for several days, rather than falling back to the support zone.

Dovish Tilt in BOE

The Bank of England’s decision to maintain interest rates steady, coupled with the dovish tone of the statement and remarks, had several effects on the currency market. Firstly, the dovish stance of the Bank of England increased speculation of potential future rate cuts or additional monetary stimulus measures. This perception of looser monetary policy tends to weaken the British pound (GBP).

Conversely, the US dollar (USD) strengthened in response to the relative dovishness of the Bank of England compared to the Federal Reserve. As a result of these dynamics, the GBP weakened against the USD, driving the EUR/GBP pair higher. The euro (EUR) gained ground against the GBP and it is likely that we will break above 0.86 soon. So, we are buying the dips in this pair.

UK February Retail Sales

• February retail sales MoM 0.0% vs -0.3% expected
• January retail sales were +3.4%; revised to +3.6%
• February retail sales YoY -0.4% vs -0.7% expected
• January retail sales YoY +0.7%; revised to +0.5%
• Retail sales ex autos, fuel MoM +0.2% vs -0.1% expected
• Prior retail sales ex autos, fuel MoM +3.2%; revised to +3.4%
• Retail sales ex autos, fuel YoY -0.5% vs -0.9% expected
• Prior +0.7%; revised to +0.5%

The breakdown of the February Consumer Price Index (CPI) data reveals some interesting trends in retail sales. Grocery shop sales experienced a decline of 0.3% month-on-month (MoM), indicating a decrease in consumer spending on food items. Similarly, automobile gasoline sales fell by 1.3%, reflecting a reduction in fuel purchases. However, these declines were offset by higher sales in other sectors.

Sales at department stores increased by 1.6%, suggesting an uptick in consumer spending on various goods typically sold in department stores. Additionally, other non-food stores saw a modest increase of 0.4% in sales, indicating continued consumer demand for non-food items. Furthermore, apparel and footwear stores experienced a notable increase of 1.7% in sales, indicating a surge in consumer spending on clothing and shoes.

EUR/GBP Live Chart