EUR/GBP edges lower on Wednesday as the latest United Kingdom (UK) budget, presented by Chancellor Rachel Reeves, is met with a cautiously positive market reaction. After an initial sell-off in the British Pound (GBP), Sterling stabilized and trimmed losses, helping push the pair down to 0.8766 at the time of writing, a decline of 0.24%.
Sterling steadies as tax-heavy budget avoids major shocks
The UK budget introduced £26 billion in tax increases, following the £40 billion raised in last year’s budget. Reeves noted that the government maintains £22 billion in fiscal headroom to cushion against unexpected shocks. However, the Office for Budget Responsibility (OBR) highlighted that fiscal space remains “small” relative to its broader projections.
The OBR forecasts UK GDP growth at 1.5% for 2025, 1.4% for 2026, and returning to 1.5% in 2027. Inflation is expected to move gradually toward the Bank of England’s 2% target, with CPI projected at 3% in 2025 and 2.5% in 2026, before reaching target in 2027.
Analysts at Nomura indicated that short GBP positions are likely to unwind after the budget avoided “major negatives,” providing Sterling some relief.
Broader market focus shifts to geopolitics and ECB commentary
The European calendar had no major releases, leaving traders focused on geopolitical developments. Market sentiment was influenced by comments from US President Donald Trump, who suggested on Tuesday that Russia and Ukraine may be close to reaching a peace agreement.
Meanwhile, European Central Bank (ECB) policymaker Boris Vujcic said he sees no immediate reason for another rate cut, though he cautioned that the situation could shift if an AI-driven market bubble were to burst.
EUR/GBP technical analysis
EUR/GBP is drifting toward the 50-day Simple Moving Average (SMA) at 0.8747, with price currently hovering near 0.8770 and capped on the upside by the 20-day SMA at 0.8799. Bearish momentum is building, reflected in the Relative Strength Index (RSI) dipping below the neutral 50 level – an indication that sellers are gaining control.
A decisive break below the 50-day SMA could open the door for a move toward the 100-day SMA at 0.8705. On the upside, reclaiming the 0.8800 level would put the day’s high at 0.8818 back into focus as the next resistance.
