The Euro stabilises near 0.8800 against the British Pound after rising from last week’s low of 0.8670. This comes as European Central Bank officials rule out immediate further rate cuts, bolstering the Euro. Concerns about the UK’s public finances continue to weigh on the Pound.

Euro gains for a fourth day against a weaker Pound during the early European session, consolidating around the 0.8800 mark with a 0.8% weekly increase. Euro strength is further boosted by Federal Reserve support ahead of the Eurozone’s HICP release, while UK public finance concerns persist.

Ecb Rate Decision

The European Central Bank held interest rates steady on Thursday, dismissing near-term rate cut prospects. ECB officials echo President Lagarde’s sentiment about the improving economic outlook, refraining from rate cuts.

UK’s productivity growth forecasts, revised down by 0.3% over the next five years, might create a GBP 20 billion fiscal gap. This and moderate inflation in September raise expectations for another Bank of England rate cut soon.

Technical analysis suggests a small triangle pattern around 0.8800, indicating possible Euro appreciation continuation. The triangle’s top, around 0.8810, acts as a resistance, with 0.8840 as a potential next target, while support might be found near the 0.8775 level if the triangle bottom, now at 0.8790, breaks.

We see the Euro consolidating its recent strength against the Pound, holding firm around the 0.8800 mark. This is driven by a clear split in central bank policy, with the European Central Bank signaling it is done cutting rates for now. Conversely, the Pound is struggling under the weight of concerns about the UK’s public finances.

Eurozone And Uk Economic Indicators

This view was reinforced by this morning’s flash Eurozone HICP data, which came in slightly above expectations at 2.8% year-over-year. On the other hand, the UK’s latest retail sales figures showed a surprise contraction, deepening worries about the domestic economy. This divergence makes a long Euro, short Pound position look increasingly attractive.

Given this backdrop, we should consider positioning for a continued move higher in EUR/GBP in the coming weeks. Buying call options with a strike price around 0.8850 could offer a good way to play the potential breakout toward the April 2023 highs near 0.8875. The triangle pattern currently forming suggests the pair is building energy for its next leg up.

For traders with a higher risk tolerance, selling out-of-the-money put options below the current consolidation could be a viable strategy to collect premium. However, we must watch the triangle’s support at 0.8790 closely. A break below that level could signal a false breakout and lead to a test of deeper support around 0.8745.

The market is now pricing in over a 70% probability of a Bank of England rate cut before the end of the year, a dramatic shift following the OBR’s recent downgrade. This expectation is likely to keep a lid on any Pound rallies in the run-up to the December meeting. Any further weak UK data will only solidify these bets and add fuel to the EUR/GBP uptrend.

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