The EURGBP pair looks vulnerable to more falls after the Bank of England’s last interest rate decision where they surprised markets with a 15bps hike. This led to an immediate downside in the EURGBP pair as the GBP strengthened.
From a medium-term perspective, this also opens up a divergence between the Bank of England and the European Central Bank. The BoE is concerned about rising inflation and looks set to hike interest rates to stop systemic inflation from entering the UK economy. The ECB are happy to keep rates as they are and most board members still see inflation as transitory in the eurozone. Therefore, there does remain a EURGBP sell bias.
The seasonals also favour EURGBP selling. Over the last 14 years, the EURGBP has fallen 11 times with an average fall of 1.20%. It is not clear why this seasonal trend is in place, but it is noteworthy.
Major Trade Risks: The main risk to this seasonal pattern would be if the ECB or the BoE shift their monetary policies. The ECB and the BoE both next meet on Feb 03.
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