Euro Leaps as British Pound Sinks and Rate Hikes Rattle Markets. Where to For EUR/GBP?

Euro Price Outlook: EUR/USD at Risk as US Treasury Yields Aim Higher
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EURO, EUR/GBP, British Pound, US Dollar, Crude Oil, Fed, BoE, USD/CNY – Talking Points

  • The Euro rallied against GBP as the BoE signalled the worst is yet to come
  • Equities and bonds have been slaughtered as the reality of higher rates kicks in
  • USD is strengthening across the board, but EUR/GBP seems to defy gravity

The Euro managed to avoid the carnage as markets broke on Thursday and into Friday.

Equities, bonds and commodities are all lower as the US Dollar soars higher. The British Pound got smashed after frank confessions from the Bank of England (BoE).

BoE Governor Andrew Bailey said, “a recession is a nailed-on certainty.” The BoE also forecast inflation to hit 10% in this cycle.

Later in the day, Wall Street tanked after former Fed Vice Chair Richard Clarida said the Fed will have to tighten more than what Chair Powell said in the post FOMC press conference.

Clarida said, “Expeditiously getting to neutral will not be enough.” He went on to further say, “The Fed funds rate will, I believe, ultimately need to be raised well into restrictive territory, by at least a percentage point above the estimated nominal neutral rate of 2.5%.”

Rate hikes have come thick and fast this week with the RBA (+0.25%), RBI (+0.40%), Fed (+0.50%), BCD (+1%) and BoE (+0.25%) all raising rates.

US Treasury yields screamed higher, particularly beyond the 5-year part of the curve.

Commodities are generally lower, with the exception of crude oil. It is up on OPEC+ keeping on track for small bump in supply. At their meeting they ratified a 432,00 barrels per day increase for June.

The Chinese Yuan was allowed to weaken to its lowest level since November 2020, with USD/CNY trading as high as 6.6934. This could have ramification for other emerging market currencies. USD/JPY could also be impacted as it trades near 20-year highs as it approaches 131.

US jobs is due out later today, but the market will be watching for more commentary from several central bankers that are due to speak.

The full economic calendar can be viewed here.

EUR/GBP Technical Analysis

Yesterday’s session saw EUR/GBP race up through resistance levels at 0.8467, 0.8478 and 0.8513. These levels may provide support on a pull back. Further down, the prior low at 0.8367 could provide support.

On the topside, resistance might be offered at the yesterday’s high of 0.8546 and the December peak of 0.8595.

The move up saw the price pierce above the 260-day simple moving average (SMA) and the short term 10- and 21-day SMAs have turned up, with a steep positive gradient. This could indicate that bullish momentum is emerging.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter



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