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Forex Trading: EURGBP Outlook Weighed By BoE, ECB Policy

David Song

We’re seeing the EURGBP retrace the decline from the December high (0.8224) ahead of the European Central Bank (ECB) and Bank of England (BoE) interest rate decisions, but the short-term rebound may quickly fizzle out amid the deviation in the policy outlook. Both the ECB and BoE are widely expected to maintain its current policy in January, but we may see the Governing Council sound more dovish this time around as the euro-area faces a deepening recession. In contrast, the budding recovery in the U.K. may encourage the BoE to adopt a more hawkish tone for monetary policy, and it seems as though the central bank is moving away from its easing cycle as inflation holds above the 2% target. As the EURGBP struggles to hold above the 78.6% Fibonacci retracement from 2008 low to high around 0.8140-50, the pair looks poised to threaten the upward trending channel from back in July, and we may see a key reversal in the euro-pound as market participants weigh the outlook for monetary policy.

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