EUR/GBP steadily climbs to 0.8500 area, highest since mid-June ahead of ECB
- EUR/GBP gains traction for the second straight day and climbs to a nearly two-month high.
- A combination of factors continues to undermine the British pound and remains supportive.
- The euro bulls seem reluctant to place aggressive bets ahead of the key ECB policy decision.
The EUR/GBP cross adds to the previous day's strong gains and scales higher for the second successive day on Thursday. The steady intraday ascent lifts spot prices to the highest level since mid-June, with bulls now awaiting sustained strength beyond the 0.8500 psychological mark.
The new UK Prime Minister Liz Truss will set out her plan to tackle soaring energy bills on Thursday, which could cost as much as £130 billion over the next 18 months, running up the budget deficit. This comes amid a bleak outlook for the UK economy and reduced bets for more aggressive rate hikes by the Bank of England. The combination of the aforementioned factors contributes to the British pound's underperformance and acts as a tailwind for the EUR/GBP cross.
The shared currency, on the other hand, struggles to gain any meaningful traction as investors prefer to move to the sidelines ahead of the European Central Bank meeting. This, in turn, does little to provide any impetus to the EUR/GBP cross. The ECB is widely expected to lift interest rates for the second time in as many meetings to tame inflation. Investors, however, remain divided over the size of the hike amid the worsening economic outlook.
Nevertheless, the current market pricing indicates a greater chance of a supersized 75 bps increment amid a record high annualized inflation in the Eurozone. Apart from the rate hike announcement, the focus will be on the post-meeting press conference. Investors will closely scrutinize comments by ECB President Christine Lagarde, which should infuse some volatility around the common currency and help determine the near-term trajectory for the EUR/GBP cross.
Technical levels to watch