EUR/GBP Price Forecast: Aims to revisit four-month high of 0.8450

• EUR/GBP extends winning spree amid sheer weakness in the Pound Sterling.
• Surging borrowing costs for the UK government have weighed on their economic outlook.
• The Euro gains despite expectations for the ECB to reduce interest rates by 100 bps by the mid-summer.

The EUR/GBP pair extends its winning streak for the fifth trading day on Tuesday. The cross outperforms as the Pound Sterling (GBP) performs weakly across the board, given that the United Kingdom’s (UK) economic outlook has faltered due to rising yields on Britain’s gilt securities.

The 30-year yields on UK gilts have risen to 5.47%, the highest level seen in more than 26 years. The surge in the UK government’s borrowing cost is partly driven by the uncertainty over incoming trade policies by United States (US) President-elect Donald Trump and the nation’s heavy reliance on foreign financing.

Investors expect that higher borrowing costs could force Chancellor of the Exchequer Rachel Reeves to go against her fiscal rules as she vowed, in the autumn budget, to rely on foreign borrowing for funding investment and not on day-to-day spending.

Meanwhile, the Euro (EUR) performs strongly against its major peers on Tuesday even though the European Central Bank (ECB) is expected to continue reducing interest rates this year. The ECB cut its Deposit Facility rate by 100 basis points (bps) to 3% in 2024 and is expected to cut further by a similar size by the mid-summer.

EUR/GBP extends its weekly rally to near 0.8430. The cross strengthened after breaking above the December 27 high of 0.8329, which has become a support now. A fresh bull cross, suggested by the 20- and 50-day Exponential Moving Averages (EMAs) near 0.8330, indicates a strong uptrend.

The 14-day Relative Strength Index (RSI) rises sharply to near 70.00, suggesting a strong bullish momentum.

The cross would witness a fresh upside move to near the August 26 high of 0.8475 and the psychological resistance of 0.8500 after breaking above the October high of 0.8448.

Alternatively, a downside move below the January 14 low of 0.8384 would falter the upside move and drag the asset towards the October 24 high of 0.8350, followed by the December 27 high of 0.8329.

EUR/GBP daily chart