Piece written by Alexa Smith, Trive Financial Market Analyst 

The Bank of England (BoE) opted to maintain interest rates at their current levels due to indications of a slowdown in economic growth in the United Kingdom. This decision marked a departure from the previous pattern of rate hikes observed since December 2021, sending the EURGBP currency pair to a 3-month high.  

Leading up to the meeting, market sentiment had been shaped by the anticipation of an imminent 25 basis point rate hike before the end of the year, if not during last week’s policy meeting. However, the likelihood of an additional rate hike before the end of the year fell to 40% on Monday due to woeful macroeconomic conditions. British business activity data released on Friday revealed a more challenging September for companies than initially anticipated, with the S&P Global Services PMI dropping to its lowest level since the pandemic-induced lockdown in January 2021.  

Technical  

The EURGBP currency pair is sitting at a significant juncture, as the 0.87035 resistance has been a thorn in the currency pair’s side, deterring the formation of an uptrend. A rising wedge formed on the 4H Chart, with the 0.86278 resistance supporting a breakout towards the 0.87035 resistance. Since the 50-day moving average has diverged from the 100-day moving average, the price action has ticked up with conviction, but the occurrence of an uptrend hinges on a breakout above the 0.87035 resistance.  

However, declining buying volume could see the currency pair retreat towards the 0.86567 support, which could pave the way for a move lower. In this case, the 100-day moving average could mark a pivot point for a downtrend towards the 0.0.85054 support.  

Summary 

The EURGBP currency pair experienced a leg up due to a shift in sentiment in the likelihood of another rate hike by the BoE. If the currency pair breaks down the 0.87035 resistance, the 0.87336 resistance could pave the way for a strong uptrend. However, the 0.87035 resistance could hold and promote a drawdown towards the 0.85054 support.  

Sources: TradingView, Reuters