• EUR/GBP continues to pull back sharply from years high and hits one-week lows.
• The British government withdraws part of the tax cut plan, boosting the pound.
• Markets with less pessimistic climate give extra support to the British pound.

The EUR/GBP cross continues with a marked bearish tone in the short term and continues to pull back after jumping from days ago to highs to two-year highs above 0.9250. Since then he lost almost 600 pips and just hit a one-week low at 0.8695.

The pound is favored by a combination of factors on Monday, including even a weak euro. The initial push came after UK Finance Minister Kwasi Kwarteng did a U-turn on Monday and confirmed that the government will not go ahead with a plan to cut the top income tax rate from 45%. . The Truss administration thus yields to widespread pressure to reverse part of its fiscal plan.

On the other hand, the shared currency is hurt by speculation of a possible recession in the region, amid the risk of a new escalation of the conflict between Russia and Ukraine. This, along with modest US dollar strength, weighs on the euro. While GBP/USD posted fresh highs above 1.1200, EUR/USD remains range bound around 0.9780, neutral for the day.

Volatility in the EUR/GBP remains elevated, as in the financial markets. This is expected to continue in this way including the pound crosses, which despite the recent advance still have important risks ahead such as the economic outlook for the United Kingdom and caution in the markets.

Technical levels