EUR/GBP hangs near multi-month lows, eyeing 0.8800 mark

A combination of factors prompted some fresh selling around EUR/GBP on Monday.
The euro was weighed down by the ECB’s attempts to jawbone the single currency.
Diminishing odds for a BoE rate cut benefitted the GBP and added to the selling bias.

The EUR/GBP cross traded with a negative bias through the early European session and was last seen trading near the lower end of its daily range, around the 0.8825-20 region.

Having struggled to capitalize on Friday’s positive move, the cross met with some fresh supply on the first day of a new week and moved well within the striking distance of eight-month lows set last week. The shared currency’s relative underperformance against its British counterpart could be attributed to the ECB jawboning on the recent euro strength.

The ECB Governing Council member Klaas Knot hinted that the ECB could cut interest rates further to counter any further appreciation for the euro and to keep inflation target in sight. The euro bulls seemed rather unimpressed by reports that the ECB is unlikely to reduce its already-record low policy rate to counter the coronavirus-induced slowdown.

On the other hand, the British pound benefitted from chatters about a further easing of coronavirus restrictions in the UK and diminishing odds for any BoE rate cut in 2021. In fact, UK money markets indicated that investors have pushed back bets for 10bps interest rate cut by the BoE to 2022 vs the previous expectations for such a move in December.

It will now be interesting to see if the EUR/GBP cross is able to find any support at lower levels or weakens further below the 0.8800 mark to confirm a fresh near-term bearish breakdown. Market participants now look forward to the release of the final Manufacturing PMI prints from the Eurozone and the UK for some meaningful trading opportunities.

Technical levels to watch