EUR/GBP rebounds after BoE keeps rates pinned

• EUR/GBP bounced from near-term lows to cross 0.8450.
• BoE keeps rates on hold, cites still-tight labor market and tricky inflation.
• Friday to wrap up the trading week with UK Retail Sales, PMIs in EU and UK.

EUR/GBP found some room on the high side on Thursday after the Bank of England kept rates on hold at 5.25%. Mid-tier EU data did little to spark much movement in either direction, though Euro traders will note a further softening in the German Producer Price Index (PPI) in May.

Germany’s PPI slipped to 0.0% MoM in May, down from the previous 0.2% and flubbing the forecast uptick to 0.3%. YoY PPI figures also missed the mark, declining to -2.2% for the year ended in May. The annualized figure rebounded from the previous -3.3%, but still failed to grab the forecast recovery to -2.0%.

The BoE held rates in place in June as was broadly expected, but a focus on recent services inflation coupled with an ambiguous goal to keep inflation “sustainably” at 2% has left the Sterling in the lurch. The BoE went on to note a willingness to keep policy restrictive for as long as needed and highlighted that the UK labor market, while looser than previous, still remains tight in comparison to historical figures. The Sterling lost ground against the Euro, pulling EUR/GBP back up from an intraday low of 0.8435 to retest 0.8460.

Read more: BoE maintains policy rate at 5.25% as forecast

Friday will see a fresh round of UK Retail Sales, forecast to recover to 1.5% MoM in May after April’s -2.3% decline. Pan-EU HCOB Purchasing Managers Index (PMI) and UK PMI numbers for June are expected to recover slightly. The EU’s June Manufacturing PMI is expected to move to 47.9 from 47.3, while the Services PMI component is forecast to rise to 53.5 from 53.2. On the UK side, June’s Manufacturing PMI is expected to tick to 51.3 from 51.2, while the Services PMI is forecast to clip into 53.0 from 52.9.

EUR/GBP technical outlook

EUR/GBP found the juice for an intraday bullish recovery, but the pair's outlook is still firmly bearish. 0.8460 represents a significant near-term hurdle for bulls to overcome, and the pair has only just started clawing back ground after last week’s tumble into a 22-month low at the 0.8400 handle.

The pair has closed flat or down for five consecutive weeks, and despite recovering 0.80% from nearly two-year lows, bullish momentum remains anemic. If bidders are able to recover their balance, the 0.8500 handle will be waiting further above.

EUR/GBP hourly chart

EUR/GBP daily chart