EUR / GBP returns near multi-week highs after ECB, focus shifts to Brexit

• EUR / GBP recovered strong positive traction on Thursday amid fading hopes of a Brexit deal.
• The strong momentum received an additional boost after the ECB announced its political decision.
• Investors are now looking forward to the Brexit-related EU Summit headlines.

The crossing EUR/GBP added to its strong intraday gains and spiked to the 0.9125-30 region in the last hour, returning near the multi-week highs set on Tuesday.

A key summit between the Prime Minister of the United Kingdom, Boris Johnson, and the President of the European Commission, Ursula von der Leyen, ended with no apparent progress. In addition, officials cited that the two sides remain widely separated on key issues such as fisheries and a level playing field. Not-so-optimistic developments clouded the prospects for a last-minute post-Brexit trade deal. This, in turn, sparked further selling around the British pound and was seen as one of the key factors helping the EUR / GBP regain positive traction on Thursday.

The intraday rally accelerated after the European Central Bank unsurprisingly left its benchmark interest rates unchanged at the end of the December meeting. The ECB increased the size of its Pandemic Emergency Purchase Program (PEPP) by € 500 billion to a total of € 1.85 billion. Furthermore, the ECB also extended the horizon for net purchases under the PEPP by 9 months to March 2022. The ECB did little to surprise the market, as the additional stimulus was already discounted, which, in turn, provided a modest boost to the shared currency.

At the press conference after the meeting, ECB President Christine Lagarde said that the increase in the PEPP reflects the consequences of economic activity, adding that incoming data suggests a more pronounced short-term impact from the pandemic. He reiterated that uncertainty remains high and there is a good chance that the ECB will adjust all its tools as needed. However, the subdued comments were offset by an upward revision of the GDP growth projections through 2022.

Now it will be interesting to see if the EUR / GBP cross is able to capitalize on the strong momentum or if the bulls choose to lighten their positions, as the focus remains on the developments surrounding the Brexit saga. The European Council agenda has been modified and the leaders will now discuss the Brexit deal later this Thursday. Incoming headlines will influence sterling price dynamics and produce some significant trading opportunities around the EUR / GBP cross.

Technical levels