FX.co ★ EUR/GBP: Pound Under Pressure After Mixed Inflation Data

The EUR/GBP pair continues its steady recovery, trading around 0.8533 at the time of this review, bouncing back from annual lows hit in early July. The British pound is under pressure following mixed inflation data, which weakened expectations for an imminent tightening of the Bank of England's policy, while the euro is receiving support from expectations of a "hawkish" signal from the European Central Bank at Thursday's meeting.

The EUR/GBP cross has recorded its fourth consecutive session of growth, continuing its recovery from multi-year lows around 0.8455. The key driver of the pair's rise has been the mixed inflation data from the UK published on Wednesday.

The Consumer Price Index (CPI) in June slowed to 2.6% year-on-year from 2.8% in May, falling below forecasts of 2.7%. However, the core measure, excluding volatile components, remained at 2.6%, surpassing expectations of 2.5%. This indicates persistent inflationary pressure in the economy despite the overall slowdown.

Fundamental Background: Monetary Divergence and Geopolitics

Bank of England: Pause in Tightening. Published data on inflation and the labor market (wage growth has slowed, hiring has weakened) reduced pressure on the BoE to tighten policy immediately. The slowdown in inflation to 2.6% essentially rules out the possibility of a rate increase at the BoE meeting in July. Markets are fully pricing in a 25 basis point hike only at the November meeting, and analysts warn that restrictive policy amid a weak economy raises the risk of downward revisions to rate expectations.

Fiscal Risks in the UK. Additional pressure on the pound comes from uncertainty surrounding the fiscal policy of new Prime Minister Andy Burnham. Investors are assessing how the government will finance its spending plans, reviving concerns about the sustainability of public debt. Initial optimism regarding the leadership change is quickly fading, and risks to the UK's fiscal stability are returning to the spotlight.

ECB: Expectations of a "Hawkish" Pause

Market attention on Wednesday was focused on the ECB meeting. It is widely expected that the central bank will keep the deposit rate at 2.25% after the hike in June. However, the key signal will be the rhetoric from President Christine Lagarde. The markets expect her to "keep the door open" for a rate hike in September amid persistent inflationary risks, especially considering the rise in energy prices due to geopolitical tensions.

Geopolitical Factor. The resumption of hostilities between the US and Iran and threats to block straits are pushing oil prices higher, reviving global inflation concerns. This places additional pressure on the pound, as the UK is a net importer of energy, but it also supports expectations for tightening ECB policy, which provides support to the euro.

Brief Technical Analysis

From a technical perspective, trading above the important short-term support level of 0.8515 (200 EMA on the 1-hour chart), EUR/GBP retains a short-term bullish outlook. On the 4-hour chart, the price is moving towards the next resistance zone of 0.8551-0.8587 (144- and 200-period EMA). At the same time, despite the correction observed since the beginning of the year, the global trend for the pair remains bullish.

The strategic support level of 0.8477 (144 EMA on the monthly chart) has held, providing the necessary support for the price.

Now, for the pair to resume its long-term and medium-term bullish trend, it needs to overcome key resistance levels at 0.8598 (200 EMA on the weekly chart), 0.8635 (200 EMA on the daily chart, 50 EMA on the weekly chart), and continue to rise.

• RSI (14) on the 4-hour chart is around 60-62, indicating bullish momentum.
• OsMA and Stochastic on the 4-hour chart also recommend long positions.

The nearest resistance is located at 0.8551 and 0.8568. A breakout above with confirmation from indicators may open the path to 0.8587 (50 EMA on the daily chart) and 0.8600, followed by the 0.8635–0.8700 zone. The nearest support is at 0.8515 (key level and 200 EMA on the 1-hour chart), 0.8500, and 0.8477. A breakout below with confirmation from indicators may open the way to re-testing annual lows.

Key Events to Watch

Date	Event	Forecast / Expectation	Expected Impact on EUR/GBP
July 23	ECB Meeting	Expectation to maintain rate at 2.25%	"Hawkish" signal = upward; "dovish" = downward pressure
July 23	Press Conference with Christine Lagarde	—	Key driver for the euro
July 31	Eurozone Consumer Confidence Index (July)	Forecast: -16.8	Strong data = support for EUR
Throughout week	Developments in the geopolitical situation	—	Escalation = support for EUR; de-escalation = support for GBP

Conclusion and Recommendations for Investor

The EUR/GBP pair is in a decisive phase, where the bullish momentum from expectations of a hawkish signal from the ECB and fiscal risks in the UK faces bearish pressure from weak economic data and geopolitical uncertainty. Key levels of 0.8515 and 0.8568 remain critical for short-term dynamics. This week, the market's focus will be on the ECB meeting and developments in the geopolitical situation, which may provide new signals for further movement.For Short-term Traders: Prioritize long positions upon a breakout of 0.8550 with targets at 0.8568 and 0.8600–0.8650. Consider short positions only if there is a breakout below 0.8515 confirmed by fundamental factors.For Medium-term Investors: Take a wait-and-see position until the geopolitical situation and ECB meeting results clarify. A correction to 0.8480–0.8440 could be used to enter long if the ECB maintains a hawkish stance and fiscal risks in the UK persist.Risk Management: Stay cautious due to high volatility related to central bank decisions and geopolitical events. Strictly adhere to stop-losses and monitor developments in the Middle East as well as comments from representatives of the ECB and the BoE.