EUR/GBP Advances as Sterling Softens Ahead of BoE Meet

Key Moments

BoE Decision Looms as EUR/GBP Extends Recovery

EUR/GBP advanced for a second consecutive session on Wednesday, building on a recovery that began with a rebound from the 50-day Simple Moving Average (SMA) at 0.8555 on Monday, which marked a two-week low. The move reflected broad underperformance of the British Pound as market participants pared GBP positions ahead of the Bank of England’s interest rate announcement on Thursday. Recent UK inflation data, which came in broadly in line with expectations, did not generate a pronounced reaction in the currency market.

At the time of writing, the cross traded around 0.8573, up roughly 0.10% on the day. On the upside, the 100-day SMA around 0.8600 continued to constrain further gains, while the 50-day SMA acted as initial support. With the Relative Strength Index (RSI) neutral and the Average Directional Index (ADX) subdued, the pair showed limited evidence of a strong, sustained trend.

Brown Brothers Harriman: GBP Exposed to Dovish BoE Repricing

Strategists at Brown Brothers Harriman stated that the BoE is “widely expected to keep the policy rate at 3.75% for a sixth straight meeting tomorrow given contained UK inflation pressures and ongoing labor market slack.” They emphasized that the market is still anticipating more tightening than their baseline, noting that “the swaps curve [implying] 100bps of BoE rate hikes to 4.75%” over the next twelve months.

However, Brown Brothers Harriman argued that “the BoE may not need to tighten as much as markets expect.” They highlighted several factors: “the UK economy is already operating below capacity,” “Bank Rate at 3.75% is near the top of the BoE’s estimated 2% to 4% neutral range,” and “fiscal policy will likely turn more restrictive.” They concluded with the assessment that the “bottom line: GBP is vulnerable to a dovish BoE repricing.”

Société Générale: Focus Shifts to Budget and Potential Autumn Sterling Weakness

Strategists at Société Générale suggested that the recent decline of EUR/GBP below 0.86 has largely played out, with investors’ attention now turning toward UK fiscal developments. According to them, “the key event in the coming weeks is really the Budget, on October 28, rather than either tomorrow’s MPC meeting, or the November 5 one, when the market currently prices in a hike.” While they observed that “the consensus forecaster expects 1.2% growth in both the US and Eurozone next year,” they warned that “fiscal austerity in the UK could cast doubt about the UK outlook.”

Given that “UK rates already 125bp higher than in the Eurozone,” Société Générale saw “less urgency about further Bank of England tightening,” and cautioned that “a narrowing rate differential and concerns about tighter fiscal policy suggest that if we are going to see a sterling wobble, it is likely to come this autumn.” In their scenario, “a wobble could take EUR/GBP back to 0.88 in Q4.”

Technical Picture: EUR/GBP Trapped Between Key Moving Averages

From a technical standpoint, EUR/GBP has struggled to generate strong momentum after its recovery from below 0.8500 in mid-July. Upside attempts have been repeatedly constrained in the 0.8600-0.8610 band, an area that previously served as multi-month support and now functions as resistance. This zone is closely aligned with the 100-day SMA at 0.8595, creating a notable ceiling for buyers.

The RSI reading around 51 points to slightly positive but broadly balanced conditions, while a low ADX reading underscores the absence of a robust trend, leaving price action largely confined between nearby moving averages. The Moving Average Convergence Divergence (MACD) line remains marginally negative and near the signal line, underscoring the lack of clear directional bias in the near term.

On the upside, a decisive move through the 100-day SMA at 0.8595 and the 0.8600-0.8610 resistance band would clear the way for a potential test of the 200-day SMA at 0.8645.

On the downside, initial support is located at the 50-day SMA near 0.8554. A break below that level would expose the psychological 0.8500 area, followed by the July low close to 0.8455.