Eurgbp Reclaims Resistance

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Eurgbp Reclaims Resistance

Eur/Gbp Reclaims 0.8550 As Uk Enters Into Recession

The EUR has the upper hand against the GBP on news that the UK economy has gone into recession. The recent GDP data has shown that the economy shrank by 0.3% during the quarter.

Although the investors forecasted the UK economy to grow by 0.1% in Q4, the actual reading showed a contraction of -0.3%. During Q3, the rate of contraction was also -0.1%, which means the country has already faced two consecutive quarters of contraction.

Uk Economy Under Contraction

So, when we say that the UK is facing a technical recession, it is based on complex data rather than speculations. And that's precisely the reason EUR/GBP was sent beyond the 0.8550 handle.

Although the recession is bad news for the UK economy, it has increased the chances of an early rate cut from the Bank of England (BoE). After all, keeping the current interest rate levels in the UK will worsen the economic outlook.

If the BoE goes with a rate cut before the ECB, it will mean more upside for the EUR/GBP and could send it toward the 0.86, 0.87, or even the 0.89 handle.

Conversely, the ECB has said their policy is based on economic data rather than wishful thinking. For starters, Lagarde from the ECB added that the financial activities remain weak & and they are not limited to any particular sector.

Additionally, the ECB officials believe the disinflation process is ongoing, which means the EU CPI will go lower during the rest of 2024.

Since the EU is not in recession while the UK has already started to experience it, the medium-term outlook for the EUR/GBP is bullish to neutral. The only chance for the EUR/GBP to reverse its current course is when the EU matches the rate cut from the UK.

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