Fundamental backdrop
The divergence in the monetary policy paths of the ECB and the Bank of England is creating a mixed outlook for the pair. Having completed a cycle of eight consecutive rate cuts in 2025, the ECB left its deposit rate unchanged at 2.0% at its April meeting. At the same time, according to Trading Economics, markets are assigning a high probability to a 25-basis-point rate increase as early as 11 June.
The Bank of England, by contrast, remains in wait-and-see mode. On 29 May, Governor Andrew Bailey suggested that inflation could temporarily exceed its target level, indicating that a rate increase from the current 3.75% is unlikely in the near term. As a result, the interest-rate differential between the two central banks could narrow as early as June, and this scenario is weighing on sterling.
Technical picture
On the daily chart, EUR/GBP has completed the bullish structure that began near 0.8250 in February 2025. The advance reached the 0.8850 area in November before giving way to a decline. The trendline drawn from the February low was broken in early January, after which the pair entered a sideways phase within the current horizontal volume profile. The profile boundaries are located around 0.8735 on the upside and 0.8645 on the downside. The point of control is concentrated within the 0.8670–0.8675 range and is positioned close to the lower boundary of the profile.
At present, the price is testing the lower boundary of the profile, and a break below it could shift market attention towards the 0.8620 area. Should buyers succeed in overcoming the upper boundary of the profile, the next resistance level is located near 0.8790.
The RSI and its moving averages are currently reading 45, 47 and 47. All three measures remain below the 50 mark; however, the strength of the bearish impulse has yet to receive convincing confirmation from the oscillator.
Key takeaways
The break of the ascending trendline and the ongoing test of the lower boundary of the profile are creating a tense technical backdrop. The key event of the coming weeks remains the ECB meeting on 11 June, with a potential rate increase capable of shifting the balance of power within the pair.
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