EUR/GBP hits two-week highs but fails to hold above 0.8400

• EUR/GBP hit a two-week high above 0.8400 on Friday but failed to hold and has since fallen to 0.8380.
• The pair has been more range bound than others recently amid UK/EZ growth and BoE/ECB political uncertainty following Russia’s invasion of Ukraine.

The EUR/GBP reached its highest level in two weeks on Friday, at one point rising north of the 0.8400 level in choppy US post-open trade, though the pair has since dropped back to 0.8380. Friday’s move is consistent as the pair has broken above a 0.8310-0.8380 range that had prevailed for the rest of the week so far. But the failure to push above resistance in the 0.8400 area and make a clean break beyond it suggests that a more sustained rebound towards monthly highs near 0.8480 is not really in the cards yet.

The range-bound conditions of the EUR/GBP over the past few days are in stark contrast to many other currency pairs/asset classes that have seen very high volatility as a result of the Russian invasion of Ukraine on Thursday. Traders have had trouble determining whether recent developments are bullish or bearish for the pair. Does the detrimental impact on global risk appetite favor higher EUR/GBP because sterling is more risk sensitive? Or does the EU’s vulnerability to disruptions in Russian energy imports suggest a weaker EUR/GBP given higher euro-priced risk premiums?

Meanwhile, traders are also wondering how recent events could shape the outlook for the policy divergence between the BoE and the ECB. The BoE, while continuing to raise interest rates towards pre-pandemic levels, has been more dovish recently on the prospect of a long-term tightening. Uncertainty due to the war in Ukraine is likely to dampen GDP growth this year and further reduce the prospect of a long-term adjustment. But the same can be said for the euro zone and the ECB, despite high inflation, could be inclined to stick to its current QE plans and delay any rate hikes until 2023.

Technical levels