EUR/GBP consolidating above 0.8700 after last week’s decline

• The market is digesting last week macro UK news.
• EUR/GBP is finding support at the 0.8700 figure. 

The EUR/GBP is trading at around 0.8742, virtually unchanged on the day so far as the Bundesbank president and the ECB Governing Council member Jen Weidmann said a rate hike for mid-2019 could be a possibility. Weidmann's comment boosted Euro short-term. No major macro news is expected from the Eurozone nor the UK in the US session. 

EUR futures longs decreased after their best advance since late January while net GBP longs futures had a boost higher. 

Last week, the news of the UK agreeing transition period after Brexit to be prolonged till December 2020 boosted Sterling. 

On Friday, the EU officially approved a 21-month transition period to help businesses adapt after the  Brexit. As the transition period after the period is extended until December 2020 the Sterling had a boost. Theresa May said: “this gives certainty to people and businesses. It gives them the clarity to plan for their future.”

Last week was a big macro data week for the GBP with headline inflation slowed down to 2.7% over the year in February and the average weekly earnings (including bonuses) grew 2.8% in three months to January. The unemployment rate decreased to the lowest level since 1975 of 4.3% for three months to January period of time. 

The combination of inflation slowing down and increasing nominal wages, but still keeping real wages in negative, is seen as a positive trend for the UK economic outlook according to analysts. Adding to this the retail sales increase of 0.8% m/m in February saw a hawkish twist in the voting pattern of the BoE’s Monetary Policy Committee (MPC) last Thursday, turning 7-2. The monetary policy statement in March said: “ongoing tightening of monetary policy over the forecast period will be appropriate to return inflation sustainably to its target at a more conventional horizon.”

Although the MPC voted in favor of keeping the Bank rate on hold, two external MPC member Ian McCafferty and Michael Saunders turned hawkish voting in favor of 25 basis point rate hike. 

The Bank of England kept May rate hike as likely as rates were unchanged last week. The odds for a May rate increase rose after February Inflation Report which stated that the “monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated” back in November last year.

EUR/GBP daily chart

Support is seen at 0.8670, low of last week and at the 0.8500 figure, former demand level. To the upside, resistance is seen at 0.8800 former demand level and at 0.8900 former supply level.