EUR/GBP recovers from the two-month low reached on Wednesday and returns to 0.8820 pending the ECB

• EUR/GBP gains strong positive traction and is supported by a combination of factors.
• The easing of fears of new turbulence in the European banking sector boosts the common currency.
• The divergence between ECB and Bank of England policies offers additional support ahead of the key ECB decision.

EUR/GBP is supported by the previous day’s late recovery move from the 0.8720 zone, a nearly two-month low, and gets strong positive follow-on traction on Thursday. The momentum lasts until the middle of the European session and makes the prices break above the 0.8800 signal, reaching a new high of the day at 0.8819

The positive performance of Credit Suisse, together with the prospect of a large rate hike by the European Central Bank (ECB), benefits the common currency and acts as a tailwind for the EUR/GBP cross. Indeed, the troubled Swiss bank announced that it will exercise the option to borrow up to $54 billion from the Swiss National Bank (SNB) to shore up liquidity. This helps alleviate fears of further turbulence in the European banking sector. In addition, it was reported on Wednesday that the ECB’s monetary policy makers are still leaning towards a 50 basis point hike today.

It is worth mentioning that investors had begun to doubt that the ECB would keep its commitment to another big interest rate hike, especially after the failure of two mid-sized US banks last week: Silicon Valley Bank and Signature Bank. However, a source close to the ECB’s Governing Council charged with setting rates said there had been no fundamental change in the outlook as the euro zone economy is gathering strength and inflation is expected to remain high. during years. By contrast, markets are now pricing in a 50/50 chance that the Bank of England (BoE) will pause its rate hike cycle next week.

In fact, interest rate futures point to a 50/50 chance of the BoE keeping rates unchanged and an equal chance of a less than 25 basis point hike. This further contributes to the relative underperformance of the British pound and provides an additional boost to the EUR/GBP cross. Thursday’s strong move higher, meanwhile, comes after the pair failed to find bearish acceptance below the 100-day SMA and supports prospects for further gains. However, traders would prefer to stay out before the ECB’s policy decision takes place.

EUR/GBP Technical Levels