EUR/GBP: Two Weeks of Compression Reach Their Breaking Point

The euro is closing out August with genuine momentum, having climbed to $1.1697 against the dollar, its strongest level in three months, on the back of ECB hike bets that keep gaining traction. French and Spanish inflation both surprised to the upside, with Spain's harmonised reading hitting 4.5%, its highest since 2023, reinforcing market expectations that the ECB deposit rate could climb to 2.80% by next March, from 2.25% currently. A September hike is now seen as roughly 60% likely.

Sterling, meanwhile, is navigating a genuinely awkward domestic backdrop. The Bank of England's July decision, a 6–3 hold with three members pushing for a hike, initially read as hawkish, but Governor Bailey used his press conference to firmly close the door on near-term hike bets anyway. UK inflation eased to 2.9%, yet the labour market cooled more sharply than expected, with private-sector wage growth hitting its softest pace since 2020, leaving the BoE genuinely torn between growth resilience and a weakening jobs picture.

The result: an ECB gaining real conviction towards further tightening, versus a Bank of England sending increasingly mixed signals just as political uncertainty around Downing Street's succession continues to simmer in the background.

Technical Analysis of EUR/GBP

As the EUR/GBP chart shows, the pair has been compressing into a tightening symmetrical triangle since mid-August, with a descending trendline from the 0.8587 highs converging with an ascending trendline off the 0.8480 lows, both meeting right around the current price near 0.8569, exactly where the 100-period EMA also sits.

Bullish Scenario

Should buyers break above the descending trendline, the path would open towards a retest of the 0.8587 highs, the 0 Fibonacci level marking the origin of the recent pullback. A confirmed breakout above that level would signal genuine bullish continuation for the euro.

Bearish Scenario

Conversely, a break below the ascending trendline and the 100-period EMA would expose the 0.382 retracement near 0.8536, with a deeper slide risking a retest of the 0.5 level around 0.8521.

With price coiled right at the apex of this triangle, sitting exactly on the 100-period EMA, EUR/GBP looks primed for a decisive break. Will the ECB's hawkish momentum finally push the euro through resistance, or will sterling's political noise keep the pair capped?

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