- EUR / GBP is witnessing some continuation selling for the second day in a row on Thursday.
- Some replenishment movements before the ECB’s monetary policy decision seem to put pressure on the pair.
- Brexit issues and nervousness over COVID-19 act as a headwind for the British pound and help limit deeper losses.
The crossing EUR / GBP is extending the slide below the 0.8600 level during the European session on Thursday. At the time of writing, the cross is close to its daily lows of 0.8572.
The cross has extended the heavy losses of the previous day and has seen some continuation selling for the second day in a row on Thursday. The downward movement has dragged down the EUR / GBP away from nearly two-month highs, around the 0.8670 region, played earlier this week.
The relative poor performance of the common currency against its British counterpart could be attributed to some repositioning before the European Central Bank meeting. Other than this, the intraday slide lacks any obvious fundamental catalyst and is likely to remain limited.
The resurgence of COVID-19 infections in the UK, along with the Northern Ireland Protocol impasse The Brexit deal could continue to act as a headwind for the British pound. This, in turn, could offer some support to the EUR / GBP cross and help limit the decline.
In fact, new cases have increased by more than 50,000 a day in the UK. On the Brexit front, the EU rejected the UK’s demand for a new approach to the Northern Ireland Protocol. This, along with comments from BoE Lieutenant Governor Ben Broadbent, should limit gains for the British pound.
Broadbent said that was not convinced that current inflation should mean higher inflation in 18-24 months, a more relevant time horizon for monetary policy. The market reacted quickly and delayed expectations of a 15 bps rise by the BoE to August 2022 from May 2022.
Before expected ECB monetary policy decision, investors also seem reluctant to open aggressive positions. This has been seen as another factor that has helped the EUR / GBP cross find some support near a resistance breakout point of a multi-month-old downtrend line.
Investors’ attention is now on the ECB’s decision and any significant changes in future direction. This, coupled with statements by ECB President Christine Lagarde at the post-meeting press conference, could generate some trading opportunities around the EUR / GBP cross.