EUR / GBP consolidates below 0.8900 after hitting eight-month lows

• EUR / GBP has fallen to fresh eight-month lows below the 0.8850 level in the early part of the European session on Wednesday.
• Technical selling appeared to have been in play as the pair broke down a short-term pennant.

He EUR / GBP has fallen to fresh eight-month lows below the 0.8850 level in the early part of the European session on Wednesday, despite the lack of notable fundamental catalysts to fuel the move. Technical selling seemed to have been at stake. Since late last week, the pair had been consolidating within a pennant structure that, during early European trading, broke down. Since hitting lows around 0.8840, EUR / GBP has picked up some of the day’s losses and is now trading at 0.8870, down around 0.2% or just over 20 pips on the day.

Euro zone news

The EUR was among the worst performing G10 currencies on Wednesday despite positive news that Italian Prime Minister Giuseppe Conte managed to survive Tuesday’s vote of no confidence in the Italian Senate. As a reminder, the vote was triggered when the Viva Italia party left the government last week due to criticism about how the pandemic has been managed and about the use of EU support funds to be distributed starting this year. SEB notes that “as one of the countries most affected by the Covid crises, the majority did not want a new political crisis and the prime minister in the end managed to stay.” The bank goes on to say that “compared to other periods of political turmoil in the last 10 years or more, the fact that we now have the support of the EU and the ECB is devouring government bonds, the financial markets this time have adopted a calmer approach to development and the yield differential with Germany has remained largely unchanged. “

Perhaps the poor performance of the EUR is more a reflection of concerns about lockdowns. The German Chancellor, Angela Merkel formally announced stricter restrictions Tuesday night (European time), while the prime minister of the Netherlands introduced a new curfew that will take effect from Friday, along with a ban on all flights outside the Schengen area from January 23.

UK News

The inflation figures for December were released before the start of the European session and came out slightly stronger than expected, perhaps contributing in some way to the initial strength of the GBP against the rest of the G10 currencies. Headline inflation increased 0.6% year-on-year (versus expectations of a 0.5% increase). Greater strength in the year-on-year inflation rate is expected in the coming months, and the annual inflation rate is likely to reach 2% or more in March.

Meanwhile, the UK ONS House Price Index for November rose at an annual rate of 7.6% year-on-year, up from 5.4% the previous month, its fastest rate since 2016.

On the other hand, the latest numbers of Covid-19 were released. New cases increased by 38,905 on Wednesday, slightly above Tuesday’s increase of 33,355., while deaths rose to another record 1,820 on the day. The number of people who received their first vaccination rose to 4,609,740. The hope is that as the proportion of the UK’s most vulnerable members who have been vaccinated continues to rise and the lockdown continues to take effect, the number of daily deaths should soon fall in line with the recent drop in new cases and hospitalizations. .

Finally, in the UK news, Bank of England Governor Andrew Bailey has made some comments about the economy, but not about monetary policy. Noted that GDP was still 10% lower in September than it was before the pandemic and this outlook has been mixed since September in the middle of the second wave, although data for November showed that the economic impact of the lockdowns is diminishing.

EUR / GBP technical levels