• Pound boosted by sticky CPI data
  • EURGBP drops over 20 pips
  • Eurozone CPI match initial estimates
  • Watch out for BoE Bailey's speech
  • Key levels at 21 and 50-day SMA

EURGBP was injected with fresh volatility on Wednesday after UK inflation fell less than expected in March.

The minor currency pair tumbled over 20 pips, dipping below the 0.8530 support as cooling BoE rate cut bets supported the British Pound. More currency movements could be on the horizon, especially when factoring in BoE Governor Andrew Bailey’s speech later today.

Interestingly, traders are now pricing in a 67% probability of a 25-basis point cut by August, with a move fully priced in by November 2024.

Sterling is up against most G10 currencies this week and may extend gains if upcoming data supports the case for “higher for longer” rates.

In other news, there were no changes to the initial estimates of the Eurozone March inflation figures with core CPI at 2.9% YoY. This data is likely to reinforce expectations around the ECB cutting interest rates in June.

Given how the ECB is expected to start cutting rates before the BoE, the EURGBP may remain pressured in the medium to longer term.

Regarding the technical, prices are trading below the 50-day SMA with 0.8530 acting as a key support and level of interest.

It is worth keeping an eye on the upward-sloping trendline that started back on February 13th, 2024. The Average Directional Movement Index is an indicator that shows the strength of the market's current trend- points to growing sterling strength.

  • A breakdown below 0.8530 may see 0.8505 along the upward-sloping trendline act as support.

  • Should prices push higher, the 50-day Simple moving average may act as near-term resistance at 0.8548.

  • Above the 50-day SMA is the 21-day Simple moving average at 0.8558.

Bloomberg’s FX model forecasts an 82% chance that EURGBP will trade within the 0.84777 – 0.85965 range over the next one week.