H2: EUR/GBP climbs to 1-year high after disappointing UK GDP
EUR/GBP starts the week higher following the disappointing UK growth data released this morning. Britain’s economy contracted 0.3% in April, the second month in a row, fueling fears of stagflation.
The euro is back to testing its year-to-date high of around £0.86 and could continue higher as the Bank of England’s monetary tightening looks increasingly compromised by the situation. economy, while the tightening of the ECB has only just begun and is not about to stop. Indeed, the ECB is expected to start raising rates next month and at every meeting until the end of the year, according to market participants.
The spread between German and British 2-year bonds is stabilizing around -100bps, but this spread should narrow as the Bank of England is more likely to become accommodative again or put an end to its monetary tightening than the ECB.
The next major catalyst for the exchange rate will be Eurozone inflation data, namely the French consumer price index on Wednesday and the Italian index on Thursday. Higher than expected readings would bolster expectations for monetary tightening, which should support EUR/GBP and vice versa.
H2: EUR/GBP daily price chart – key levels