The prospect of the ECB starting its easing cycle before the Fed and the Bank of England and delivering more rate cuts than both institutions this year may put downward pressure on the euro against the U.S. dollar and sterling in the near term.
The euro may also struggle against sterling on account of monetary policy divergence. Although the Bank of England is also on track to start lowering borrowing costs later this year, the institution led by Andrew Bailey is not likely to pull the trigger until August. Moreover, market pricing points to only 50 basis point easing from the BoE compared to the 75 basis points expected from the ECB.
After a steep sell-off on Wednesday, EUR/USD extended losses on Thursday, hitting its lowest mark in two months at one point during the trading session, before making a partial recovery. Should losses regain impetus in the coming days, support appears near February’s lows at 1.0695. Below this threshold, all eyes will be on 1.0640, followed by 1.0450.
EUR/GBP rallied earlier in the month but began to retrace after facing rejection at trendline resistance at 0.8585, with losses accelerating and prices breaking below the 50-day simple moving average on Thursday. If weakness persists, support emerges at 0.8285. Bulls must resolutely defend this technical floor; a failure to do so might result in a descent towards the 2023 lows.
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