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We have witnessed a sell-off from the highs near £0.87 given that the ECB forward guidance for low interest rates has now been afforded a definitive parameter of greater than 12 months.
The downgrading of Italy’s sovereign debt by Standard and Poor’s yesterday highlights market concerns in respect of the eurozone’s peripheral countries and so tends to put a bias to the downside on the euro. In the UK, inflation concerns are stickier and can therefore create an environment for earlier rate hikes.
The EUR/GBP pair is trading in a tight range, finding intraday support at £0.8580 with pivotal support coming in at £0.8470/80 levels.
Yesterday’s highs should contain any upside and while we look forward to tomorrow’s ECB monthly bulletin for further clues, it will be German Bundesbank president Jens Weidmann’s speech that is likely to provide any real volatility.