- EUR / GBP gains some traction on Thursday and recovers further from multi-month lows.
- The imposition of new restrictions due to COVID in the UK continues to weigh on the British pound.
- The ECB’s comments on the strength of the euro could limit any significant gains on the crossover.
The crossing EUR/GBP moves higher during Thursday’s European session and has reached new daily highs around the 0.8880 region at the time of writing.
The cross has built on the previous day’s bounce, from near the 0.8800 level to fresh eight-month lows, and gained some positive traction on Thursday. The relatively underperformance of the British pound versus its European counterpart could be attributed to the imposition of new restrictions due to COVID in the UK.
The UK government announced new measures to restrict travel from 22 high-risk countries. Travelers from those countries, who could not be denied entry, would now have to be quarantined for 10 days in government-provided accommodation. Furthermore, the prime minister Boris Johnson indicated that the lockdown due to COVID-19 in Britain would last until March 8.
Having said that, a weaker tone around the common currency could limit any significant rally for the EUR / GBP cross. The euro has been hit by news on Wednesday that markets are underestimating the odds of a further rate cut by the European Central Bank. This came after comments by ECB Governing Council member Klaas Knot about a stronger euro.
Knot said that the exchange rate would become important if it threatens the inflation outlook. Knot added that the ECB is monitoring the strength of the euro and that the central bank has tools to counter any further appreciation. Knot also hinted that the ECB could decide to cut interest rates to curb recent common currency gains.
The ECB’s policy maker, Olli Rehn, reiterated on Thursday that the central bank is closely monitoring the evolution of the exchange rate and is willing to use all instruments as appropriate. The constant comments could prevent euro bulls from opening aggressive positions and help limit gains from the EUR / GBP cross amid the absence of relevant economic releases from the UK or the EU.
EUR / GBP technical levels
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