- EUR / GBP rose on Wednesday and recovered a significant part of the previous day’s losses.
- A modest dollar weakness benefited the euro and continued to support the intraday rally.
- New nervousness around Brexit and disappointing UK macro data acted as a headwind for the British pound.
- The divergence of monetary policy between the BoE and the ECB warrants caution before opening aggressive bullish positions.
The crossing EUR/GBP moved with a slight positive bias ahead of the European session on Wednesday, although it lacked follow-up to the upside and the rally remained capped near the key psychological level of 0.8500. At the time of writing, the pair has returned all intraday gains and is moving through the region of daily lows around 0.8480.
The cross has drawn new buying near month-long lows touched earlier this week and, for now, it appears to have halted the previous day’s sharp pullback from multi-day highs. A modest decline in the US dollar has turned out to be one of the key factors behind the performance of the common currency on Wednesday.
Secondly, the UK-EU showdown over the Northern Ireland protocol and disappointing UK macro data they acted as a headwind for the British pound. This has been seen as another factor that has continued to support the buying tone around the EUR / GBP cross, although any significant recovery movement still seems elusive.
The Bank of England (BoE) officials, including Governor Andrew Bailey, signaled an interest rate hike imminent later this year over the weekend. On the contrary, the chief economist of the European Central Bank (ECB), Philip Lane, said that the inflation dynamics in the medium term is too slow and that the trigger for a change in the monetary policy action has not yet arrived.
The divergent monetary policy stance between the BoE and the ECB it should prevent traders from opening aggressive bullish positions around the euro and limit any further gains for the EUR / GBP cross. This makes it prudent to wait for a strong follow-up buy before investors start positioning for any short-term bullish moves.
EUR / GBP technical levels