EUR/GBP clings to modest gains, lacks continuation beyond 0.8600 and 100-day SMA

• EUR/GBP recovers slightly from the monthly low reached on Thursday.
• A combination of factors is propping up the common currency and offering some support to the pair.
• Rising expectations for further BoE rate hikes benefit GBP and appear to limit the pair’s gains.

The crossing EUR/GBP gains some positive traction on Friday and reverses some of the previous day’s decline to a new monthly low. The cross maintains its buying tone at the beginning of the European session, although seems to have a hard time capitalizing on the move beyond the 0.8600 level and remains below the 100-day SMA.

The relative performance of the common currency could be attributed to the talks on a more aggressive tightening of monetary policy by the European Central Bank (ECB). This, in turn, is seen as a key factor that offers some support to the EUR/GBP cross. Isabel Schnabel, a member of the ECB’s Governing Council, declared on Thursday that the central bank will probably have to keep raising rates until it reaches a tight territory. Schnabel added that incoming data suggests that the scope to slow the pace of interest rate adjustments remains limited.

In addition, the prevailing selling bias around the US dollar, coupled with the upward revision of German GDP of the third quarter, they benefit the Euro and act as a tailwind for the EUR/GBP cross. Based on the final reading, the Eurozone’s economic powerhouse expanded 0.4% during the three months to September and the annual growth rate in the third quarter of 2022 stood at 1.3% against the estimated 1.2%. However, the intraday rally lacks bullish conviction and remains capped amid underlying bullish sentiment surrounding the British pound.

The recent sharp decline in UK government bond yields represents an easing of financial conditions, which should allow the Bank of England to continue raising borrowing costs to control inflation. This, in turn, is seen as supporting the British pound and keeping any EUR/GBP rally at bay, at least for the time being. Therefore, it will be prudent to wait for strong buying before confirming that the cross has bottomed out and positioning for any significant move higher.

EUR/GBP technical levels