EUR/GBP: UK at Risk of Recession After a Disappointing October GDP Reading
MarketPulse | Dec 14, 2023 12:26AM ET
- UK economy shrinks 0.3% in October
- Markets price in three rate cuts from the BoE next year
- EUR/GBP spikes ahead of BoE and ECB announcements tomorrow
The UK economy got the fourth quarter off to a bad start, contracting by 0.3% in October from the month before.
The UK economy is struggling under the pressure of higher interest rates and it seems wet weather compounded those challenges for retailers, encouraging consumers to stay indoors.
There’s every chance spending bounces back in November and December, with the weather being less of a deterrent and households spending more ahead of the festive period. That said, they may well be looking at a more slimmed-down Christmas this year after two years of high inflation which could leave the economy at risk of recession. Which may explain why interest rate expectations have fallen next year.
EURGBP Pares Losses Ahead of ECB and BoE/h2
The euro has recently clawed back some losses against the pound after slipping back toward the summer lows, which it fell just short of.
The question now is whether the EUR/GBP pair has simply respected an established support zone or is going to take another run at it. The Fibonacci retracement levels could offer some insight on this front after such a sharp sell-off towards the end of November.
There’s a potential confluence of resistance around these as well from recent areas of support – which could become resistance – to simple moving averages. A rotation around these points could be a bearish signal either in the run-up to, or after the BoE and ECB interest rate decisions on Thursday.
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