The EUR/GBP currency pair extended its bullish momentum for the fourth consecutive day on Thursday, trading steadily around the 0.8550 level during the Asian session. The pair is navigating a critical juncture as market participants exercise caution ahead of the Bank of England’s (BoE) monetary policy decision, which is due later in the day. 

This technical juncture is marked by a tug-of-war between hawkish signals from the European Central Bank (ECB) and the cautious stance of the BoE, providing important insights into short-term price action and directional bias. Fletrade’s broker, Alexandra Leto, brings her expertise to the forefront in this deep dive into the subject.

BoE Expected to Hold Rates Steady at 4.25%

The BoE’s interest rate decision on Thursday is widely anticipated to maintain the current Bank Rate at 4.25%, especially after the release of the UK Consumer Price Index (CPI) data on Wednesday. The CPI report for May showed a year-over-year inflation rate of 3.4%, precisely in line with market expectations, and only marginally lower than April’s 3.5% print. 

Despite the gradual decline, headline inflation remains significantly above the BoE’s 2% target, reinforcing the case for a pause in the current tightening cycle.

However, forward-looking markets are still pricing in a 25 basis point rate cut for the BoE’s August policy meeting. The combination of cooling inflation and sluggish economic growth continues to pressure policymakers. 

The Bank is expected to adopt a wait-and-see approach, relying on upcoming macroeconomic data, including labour market indicators and retail activity, to guide its policy trajectory.

From a technical perspective, EUR/GBP has shown resilience despite the absence of a definitive directional move from the BoE. The 0.8550 level acts as a key psychological and technical resistance, and a decisive break above this zone could open doors for a re-test of the mid-May highs near 0.8580.

ECB’s Hawkish Rhetoric Bolsters the Euro

On the other side of the cross, the Euro (EUR) is supported by hawkish commentary from ECB officials, which has provided a tailwind for EUR/GBP bulls. 

ECB President Christine Lagarde reaffirmed that the central bank is approaching the end of its rate-cutting cycle, adding that the ECB is now “in a good position to handle uncertainties.” This statement underpins expectations that monetary policy in the Eurozone will remain relatively tight, helping support the single currency.

Moreover, ECB Governing Council member Mario Centeno introduced a growth-centric view by stating that Eurozone inflation will not return to the 2% target without a recovery in economic growth. Centeno‘s comments suggest that structural growth concerns are now at the forefront of the ECB’s discussions, potentially delaying any aggressive rate-cut strategies. 

At the same time, Fabio Panetta, another council member, acknowledged that the ECB will maintain policy flexibility amid geopolitical headwinds, including the Israel-Iran conflict, which continues to pose risks to global supply chains and market sentiment.

Such a combination of measured policy normalization and geopolitical risk awareness enhances the Euro’s appeal as a haven, particularly in cross pairs like EUR/GBP, where the BoE is perceived as being closer to a rate-cutting cycle than the ECB.

Technical Outlook: Bulls in Control Near 0.8550

Technically, EUR/GBP remains within an upward channel established since last week. The 4-day winning streak highlights bullish momentum, with the pair consistently finding support near the 20-period exponential moving average (EMA) on the 4-hour chart. 

Immediate resistance lies at 0.8555/0.8560, followed by a more significant barrier at 0.8585, which aligns with the 50-day simple moving average (SMA).

On the downside, any retracement below 0.8530 could invite fresh selling pressure, potentially dragging the pair towards the 0.8500 psychological support level. However, as long as the pair trades above this level, the near-term bias remains positive.

Conclusion: Market Poised for Volatility Post-BoE

The EUR/GBP pair is delicately balanced ahead of a critical monetary policy decision from the Bank of England. While the ECB’s hawkish tone continues to lend support to the Euro, the UK’s persistent inflation and soft economic indicators leave the BoE in a policy bind. 

As such, the 0.8550 region serves as a key battleground, and traders will be watching closely for any surprise remarks or vote splits in the BoE’s statement.