The EUR/GBP exchange rate has moved sideways in the past few days as traders focus on the upcoming European Central Bank (ECB) and Bank of England (BoE) interest rate decisions. It was trading at 0.8627, down from last year’s high of 0.8865. It has formed two major chart patterns, pointing to more downside.
EUR/GBP has formed a descending triangle pattern
The daily chart shows that the EUR to GBP exchange rate has pulled back in the past few months. It has retreated from a high of 0.8865 in November last year to 0.8628.
A closer look shows that the pair has found substantial support at 0.8615, its lowest level on February 5, March 19, and May 25. This support is part of the descending triangle pattern, whose upper side connects the highest swings in November last year and February and May this year. The descending triangle is a common continuation sign in technical analysis
The pair has also formed a small head-and-shoulders pattern, a common bearish sign. Also, it also remained below the 50-day and 200-day Weighted Moving Averages (WMA).
Therefore, the pair will likely have a strong bearish breakout in the near term, potentially to the key support at 0.8545, the 50% Fibonacci Retracement level.
EUR/USD chart | Source: TradingView
European Central Bank interest rate decision
The EUR/GBP pair has come under pressure in the past few days as investors waited for the upcoming ECB interest rate decision. Economists polled by Reuters expect Christine Lagarde and her team to deliver the first interest rate hike of the year.
If this happens, the bank will hike rates by 0.25% to 2.40% and the deposit facility rate to 2.25%. It will be the first time that the bank has hiked interest rates since September 2023. Also, it will be a big reversal after the bank delivered several interest rate cuts last year.
The bank’s rate hike will come as it combats the elevated inflation, which has continued rising in the past few months. Data shows that the headline CPI rose to 3.2% in May from 3.0% in the previous month. It has jumped sharply from the year-to-date low of 1.7%. Anal
Bank of England interest rate decision ahead
The next key catalyst for the EUR/USD pair will be the upcoming Bank of England interest rate decision scheduled for Thursday. Economists expect the bank to leave interest rates unchanged in its meeting next week.
The most recent data showed that the headline Consumer Price Index retreated to 2.8% in April, helped by the ongoing government actions. Still, Polymarket traders are predicting that the bank will hike interest rates in the coming months as inflation ticks up again.
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