EUR/GBP drops to fresh four-month lows, around 0.8480 region

  • EUR/GBP witnessed some follow-through selling for the second consecutive session on Friday.
  • The BoE’s hint about modest tightening continued acting as a tailwind for the British pound.
  • A stronger USD weighed on the shared currency and contributed to the ongoing downfall.

The EUR/GBP cross witnessed some selling during the first half of the European session and dropped to fresh four-month lows, around the 0.8480 region in the last hour.

The cross struggled to capitalize on its modest intraday uptick, instead met with some fresh supply in the vicinity of the key 0.8500 psychological mark and turned lower for the second straight day. This also marked the third day of a negative move in the previous four and was sponsored by the British pound’s relative outperformance.

Against the backdrop of the declining trend of new COVID-19 cases in the UK, the Bank of England’s hint about modest tightening acted as a tailwind for the sterling. The BoE on Wednesday indicated that it would begin reducing its quantitative easing when the benchmark rate hits 0.5% 
as compared to the previous guidance of 1.5%.

The subtle changes signal that the unwinding of the balance sheet could come more quickly than previously anticipated. The UK central bank also upgraded the near-term GDP growth and inflation forecasts. This was seen as another factor that underpinned the GBP, though a modest US dollar strength capped gains.

Meanwhile, the emergence of some fresh buying around the US dollar exerted some downward pressure on the shared currency and contributed to the EUR/GBP pair’s ongoing decline. Apart from this, the downtick could further be attributed to some technical selling following the previous day’s closing below the 0.8500 mark.

There isn’t any major market-moving economic data due for release on Friday, either from the Eurozone or the UK. Hence, it remains to be seen if the EUR/GBP cross is able to attract some buying at lower levels or weaken further below April swing lows support, around the 0.8470 region, to confirm a fresh bearish breakdown.

Technical levels to watch

Our Source

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