EUR / GBP near two-year lows around 0.8335

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  • EUR / GBP finds new selling on Monday and is approaching a nearly two-year low.
  • The reversal of Omicron fears and rising expectations of a rate hike from the BoE benefit the British pound and put pressure on the pair.
  • The upbeat Eurozone Sentix Investor Confidence Index supports the euro.

The EUR/GBP extended its steady intraday decline during the European session on Monday and fell again near a nearly two-year low, around the 0.8335 region.

The British pound continued its relative outperformance against its European counterpart amid hopes that the Omicron outbreak will not derail the UK economy. Apart of this, the divergent monetary policy perspectives of the Bank of England (BoE) and the European Central Bank (ECB) sparked further selling around the EUR / GBP cross on Monday.

In fact, the BoE presented a surprise rate hike in December and markets expect another three or four rate hikes in 2022. By contrast, ECB President Christine Lagarde said last month that inflation will be set below the 2% target in 2022 and that a rate hike would not be the correct response to the current episode of price growth.

Regarding the economic data, The Eurozone Sentix Investor Confidence Index unexpectedly improved in the first month of 2022 and rose to 14.9 from 13.5 in December. Apart from this, a strong rebound in demand for US dollars acted as a headwind for both the euro and the British pound. This could help limit any deeper losses for the EUR / GBP cross.

Even from a technical perspective, the RSI on the daily chart has moved on the verge of entering the oversold territory, further justifying some caution before positioning for any further decline. This, in turn, suggests that the EUR / GBP cross is more likely to prolong its limited price action in a range seen in the last four trading sessions.

EUR / GBP technical levels

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