EUR/GBP rises to its highest level since late May, above 0.6850

• The EUR/GBP pair rose to a high since May 31 of 0.8658 and then closed at 0.8636.
• Christine Lagarde delivered hawkish comments stating a hike by the ECB in July is likely and took off the table a pause.
• Falling British yields weight on the GBP.

The EUR/GBP currency pair has surged to its highest level since May 31, reaching 0.8658 before retracing slightly to 0.8635. This upward movement was primarily influenced by Christine Lagarde's hawkish comments, in which she confirmed the likelihood of an interest rate hike by the European Central Bank (ECB) in July and dismissed the possibility of a pause. Simultaneously, the GBP experienced weakness due to declining British yields. 

The Sterling Pound loses interest on recession fears in the UK

The GBP came under pressure as falling British yields weighed on the currency. The 2-year, 5-year, and 10-year bond yields experienced declines of over 1%, contributing to the weakening of the pound against its major counterparts. In that sense, falling yields signal major bond demand and a negative market expectation towards the British economy, applying selling pressure on the Sterling.

Christine Lagarde's statements on Wednesday during the ECB forum in Sintra, indicated a strong likelihood of an interest rate hike in July if the prevailing conditions remain consistent. She made it clear that she does not foresee a pause in monetary policy adjustments in the foreseeable future, and her hawkish stance gives the Euro a boost against the Sterling. 

Attention now turns to confidence data figures from the Eurozone and the German Consumer Price Index (CPI) preliminary readings on Thursday. In addition, Gross Domestic Product (GDP) and Personal Consumer Expenditures (PCE) data from the US from Q1 will also impact market dynamics.

EUR/GBP Levels to watch

According to the daily chart, the outlook clearly favours the Euro over the GBP. The Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) both show a strong bullish momentum. However, the 100 and 200-day Simple Moving Averages (SMA) are about to perform a bearish cross, which could limit the upside potential.

Resistance Levels to watch: 0.8658 (daily high), 0.8670,0.8695.
Support Levels to watch: 0.8600, 20-day SMA at 0.8633, 0.8645.

 

EUR/GBP Daily chart