- EUR / GBP witnessed further selling on Monday amid a rebound in demand for the British pound.
- Optimism about the gradual reopening of the UK economy continued to prop up the British pound.
- The sustained sale of the USD extended some support to the euro, which could help limit the decline.
The crossing EUR/GBP it extended its intraday decline in the middle of the European session and was last seen hovering near the lower limit of a one-week trading range, around the 0.8680-75 region.
The cross continued its struggle to find acceptance above 0.8700 and witnessed some new selling on the first day of a new trading week. Sterling’s relative outperformance versus its European counterpart could be attributed solely to optimism about a strong economic recovery in the UK, bolstered by the easing of COVID-19 restrictions.
In the latest developments, the UK Prime Minister said on Monday that the government will be able to go ahead with further easing of restrictions and waive the one meter social distancing rule on June 21. Regarding international travel, Johnson noted that there will be some opened on May 17, but added that they should be as cautious as possible.
Despite the support factor, investors could be reluctant to place aggressive bullish bets on the British pound amid the risk posed by next week’s Scottish election. Polls point to pro-independence parties achieving a supermajority in Scottish parliament, which could intensify pressure on Johnson to allow a second independence referendum.
This, coupled with a modest pickup in demand for the shared currency, could extend some support to the EUR / GBP cross and help limit the slide, at least for the time being. Expectations that the Fed will keep interest rates low for a longer period sparked further selling around the US dollar, which, in turn, was seen as a key factor benefiting the euro.
Therefore, it will be prudent to wait for some solid follow-up sales before confirming that the recent bounce from lows of more than a year has been exhausted. The EUR / GBP cross could then accelerate the decline towards the 0.8600 level. However, the decline is likely to remain muffled as investors might prefer to wait on the sidelines before the latest monetary policy update from the Bank of England on Thursday.
Technical levels
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