EUR/GBP: start of a major bullish reversal for the euro against the pound

EUR/GBP begins a reversal thanks to the ECB’s hawkish change of tone

EUR/GBP seems to have started a major bullish reversal after several months of seesawing between 0.85 and 0.82. The euro rallied to a six-month high against the pound sterling last week, breaking above the symbolic threshold of £0.85 for the first time since December.

Growing expectations of monetary tightening from the ECB are the main reason for this significant rebound in the exchange rate. European Central Bank officials are increasingly changing their minds about the way forward on monetary policy, including the influential Governor of the Banque de France and Isabel Schnabel, a member of the European Central Bank’s executive board.

The Governor of the Banque de France considered that an increase in key rates to 0% by the end of the year, i.e. an increase of almost 50 basis points, was reasonable, while the member of the executive board insisted on the “need to act” in the face of inflation.

Expectations of a rate hike are also high in the UK, but they were already anticipated by traders at the start of the year and are even starting to be questioned by the central bank due to the growing risk of recession.

EUR/GBP could therefore continue to rise in the short term with the increasingly hawkish tone of the members of the ECB. Traders anticipate a first rate hike from the European Central Bank as early as July.

EUR/GBP daily price chart – key levels

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