Ever since Brexit happened, the British pound gained against the common currency, the euro. Despite many analysts calling for the pound’s decline, it gained ground in a relentless bearish trend.
The downtrend was so strong that even in 2022, some analysts believe that the EUR/GBP exchange rate will still hover around 0.84 in March 2023 – about 10 months from now.
Currently, EUR/GBP trades at 0.85, bouncing from its lows and looking constructive from fundamental and technical perspectives. So, where will the exchange rate go next?
Here is a price prediction considering both the technical and fundamental aspects.
The two central banks’ policies are set to diverge
Let’s start with the fundamental perspective. A currency pair moves based on the monetary policy differences between the two central banks.
In this case, the Bank of England was one of the first major central banks in the world that decided to increase the interest rate in the aftermath of the COVID-19 induced recession. Moreover, it did so not once but multiple times.
At the same time, the European Central Bank did nothing. It couldn’t do so, as a war started in Eastern Europe (Russia invaded Ukraine) in February.
In order to shelter European economies from the war’s economic impact, the European Central Bank preferred a wait-and-see stance. However, inflation is running way higher than the central bank’s target, and one of the causes is just the war.
As such, the central bank recently announced that it plans to end negative rates by September. Considering that the deposit facility rate is at negative 50bp, it means that a couple of rate hikes are on the table during the summer.
Yet, the
