- EUR / GBP jumped above 0.8550 to its highest levels since mid-November, with the pound hit in anticipation of further Covid-19 restrictions in the UK.
- The pair’s rally has so far stopped at the 200 DMA, but the bulls are expecting a move to 0.8600.
The EUR/GBP It has seen a substantial rise on Wednesday, climbing above 0.8550 for the first time since mid-November when the British pound fell to its weakest level of the year so far against the US dollar. The pair is currently testing its 200-day moving average at 0.8559, having retraced from the previous session’s highs near 0.8570.
While most of the move has been sparked by concerns about the UK government’s implementation of stricter Covid-19 restrictions, technical buying is likely to play a role as well. EUR / GBP broke above a downtrend line that has been in play since early October and a break above the 200 DMA would likely usher in further buying pressure to send the pair back to its prime. November high just below 0.8600.
Driving the day
The pound is coming under pressure from the prospect of the reimposition of Covid-19 restrictions which analysts say cloud the outlook for the UK economy and may delay the Bank of England’s monetary tightening plans. The FT reported that British Prime Minister Johnson is about to announce the implementation of Covid-19 “Plan B” restrictions, including the requirement for vaccine passports to access large venues, as well as a recommendation to work from home, all in an attempt to stop the spread of the Omicron Covid-19 variant.
According to MUFG, “further tightening of restrictions with people being asked to work from home will dampen growth prospects … (and) means the Bank of England is even more likely to avoid raising rates until February ”. Unlike policy makers at the Fed and the ECB, members of the Bank of England have expressed comparatively higher levels of concern about the potential impact of the spread of the Omicron variant on the economy. Last week, one of the bank’s more aggressive members, Michael Saunders, suggested that a more patient approach to rate setting might be warranted to wait for more data on the new variant.
Additional technical levels
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