EUR/GBP approaching monthly highs at 0.8455

• Euro bounces sharply to retest 6-week highs at 0.8455.
• The BoE’s moderate hike pushes the pound lower.
• EUR/GBP seen around 0.8300 for the next few months – ING.

The EUR has bounced hard against the British pound on Thursday to resume the short-term uptrend from the 0.8200 area, targeting a retest of 6-week highs at 0.8455.

Moderate BoE hike hurts pound

The British pound loses momentum against its main rivals after the Bank of England’s monetary policy decision. The BoE has raised rates by 25 basis points to 0.75 for the third time in a row, but has adopted a more cautious tone, undermining the pound.

The bank said consumer inflation, now at a 30-year high, could reach levels above 8% this year and warned that the conflict between Russia and Ukraine is likely to disrupt the global supply chain, adding significantly to uncertainty around to economic prospects.

On the other hand, the euro shows strength, fueled by optimism about some progress in the Ukraine peace talks that could lead to a ceasefire in the coming days.

EUR/GBP seen around 0.8300 in coming months – ING

Looking ahead, ING’s FX research team does not expect the euro to appreciate significantly in the first half of the year: “Should the BoE continue to prefer a strong British pound to hedge against higher natural gas prices and the increase in the CPI to 8%? this April, it could choose to delay a rate protest until later in the year… Our preference is for the GBP to make gains during the first half of this year, and for the EUR/GBP to continue to trade near 0, 83. If we are wrong and the rate protest comes today, the EUR/GBP could rally to the 0.8480/8500 area.”

Technical levels