EUR/GBP. Price Analysis. Forecast. ECB Officials Highlight Risks Associated with Euro Strength

[Ben Graham]

On Thursday, the euro maintains stability against the British pound, stabilizing after the previous day's pressure amid growing speculation about a potential rate cut by the European Central Bank later this year.

Expectations for an ECB rate cut are fueled by the recent rise of the euro against the US dollar, which has once again attracted the attention of policymakers.

The head of the Austrian Central Bank, Martin Kocher, noted this week that prolonged euro strength could force authorities to take countermeasures. "If the euro continues to gain strength, it may ultimately require a monetary policy response," he explained, specifying that the goal is not the exchange rates as such, "but their impact on inflation, which directly affects policy."

ECB Governing Council member Fran?ois Villeroy de Galhau supported these remarks, emphasizing that the bank is "closely monitoring the euro's dynamics and its deflationary effect," and that this "will be one of the factors for rate decisions in the coming months."

Currently, there is a moderate increase in expectations for an easing of monetary policy in the Eurozone, with the probability of a rate cut at the September meeting around 26%, up from 16% previously.

At the same time, at the next meeting on February 4-5, the ECB is expected to keep interest rates unchanged.

The euro is also supported by improved sentiment indicators in the Eurozone: the business climate index rose to -0.41 in January from -0.56 in December. The economic sentiment index rose to 99.4, surpassing forecasts and bouncing back from 97.2, while consumer confidence remained stable at -12.4, as expected.

In the UK, traders are awaiting the Bank of England's decision on February 5, where rates are likely to remain at 3.75% following fresh inflation data that exceeded expectations.

For better trading opportunities in the pair, attention should be paid to the GDP data for the fourth quarter in the Eurozone and inflation data, which will be released on Friday.

From a technical perspective, prices have shown resilience below the 200-day SMA, which is near the 0.8650 level. The nearest resistance is now the 0.8640 level, above which prices will aim for the 20-day SMA on their way to the round 0.8700 level. If the pair fails to hold above the 200-day SMA, prices could accelerate their decline toward the 0.8630 level. Meanwhile, oscillators on the daily chart are negative, making it very difficult for bulls to resist.

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