- EUR / GBP sees some selling on Thursday and extends the previous day’s retracement decline.
- The better relative performance of the British pound could be attributed to the optimistic expectations of the BoE.
- The decline appears limited, while the focus remains on the ECB’s monetary policy meeting.
The crossing EUR/GBP has moved lower during the first half of the jeuves european session and has fallen to new Daily lows around the 0.8425 region in the last hour.
The cross has struggled to capitalize on its initial rally to 0.8450 and has encountered some new selling on Thursday, extending the previous day’s pullback from the 0.8465-70 resistance zone. The sterling pound’s better relative performance comes after UK Finance Minister Rishi Sunak’s upbeat economic assessment during the annual budget presentation on Wednesday.
The Office of Budget Responsibility (OBR) predicted UK GDP to grow 6.5% this year and 6% in 2022. The OBR sees that inflation averages 4% next year, well above the Bank of England’s 2% target. This reinforced expectations that the BoE will raise interest rates at the next monetary policy meeting, which also acted as a tailwind for the British pound and put pressure on the EUR / GBP cross.
Secondly, the emergence of new purchases around the US dollar it has weighed on the common currency and also contributed to the selling tone around the EUR / GBP cross. The drop, however, appears to be supported amid renewed Brexit nervousness. Investors could also refrain from opening aggressive positions before the expected monetary policy meeting of the European Central Bank (ECB) on Thursday.
In recent Brexit-related events, France announced that it will tighten controls on UK ships and trucks and it could also restrict the supply of energy to the Channel Islands if there is no agreement on fishing rights by November 2. On the other hand, UK Prime Minister Boris Johnson said the conditions for invoking Article 16 had been met unless they saw rapid progress in the Northern Ireland protocol.
Even from a technical perspective, the EUR / GBP cross has been swinging in a wider trading range for the past two weeks. This constitutes the formation of a rectangle on short-term charts and points to indecision among investors. This also warrants some caution before positioning for a firm short-term direction.
EUR / GBP technical levels
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