EUR/GBP FALLS TO NINE-MONTH LOWS BELOW 0.8550

EUR/GBP falls to a 9-month low as ECB approaches its peak rate and the BoE is ready to continue tightening.

The pair signals oversold conditions on the daily chart for the first time since 2021.

Weak economic data from Italy and Germany contribute to Euro's decline.

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The EUR/GBP pair has recently witnessed a substantial decline, falling to a nine-month low at 0.8540 and stabilizing around 0.8545. This prolonged downward trend reflects the difficulties faced by the Euro amid the economic downturn in the Eurozone. However, there is some optimism for the British economy as the Bank of England's projections indicate that the United Kingdom is likely to steer clear of a recession. Furthermore, the fact that inflation in the UK is running high is fueling hawkish bets on the Bank of England (BoE), giving additional support to the Sterling.

German yields decline on weak economic data

The National Institute of Statistics from Italy released that Italian Industrial output decreased by 1.9% in April vs the 0.1% expansion expected from its previous figure which also showed a contraction of -0.6%. On a yearly basis, the output is now down 7.2%. Adding to that, the EZ reported weak final revisions of Q1 Gross Domestic Product (GDP) on Thursday while Germany (the most important economic block from the EZ) goes through a technical recession.

The German yields weakened across the curve on Friday. The 10-year bond yield fell to 2.37% while the 2-year yield sits at 2.96% and the 5-year at 2.42%. In addition, the German DAX  stock index closed this week with 0.60 % losses indicating a negative sentiment towards de economic activity in Germany and hence applying selling pressure on the Euro.

For the upcoming European Central Bank (ECB) decision next week, markets are foreseeing a 25 basis point (bps) rate hike announcement and another one in either July or September. For the BoE market participants are anticipating a 100 bps hike to 5.50% for the remained of the tightening cycle