Search ForexCrunch
  • EUR/GBP gained some traction on Thursday and recovered further from multi-month lows.
  • The imposition of fresh COVID restrictions in the UK continued weighing on the British pound.
  • ECB jawboning on the euro strength might keep a lid on any meaningful gains for the cross.

The EUR/GBP cross edged higher through the early European session and refreshed daily tops, around the 0.8855-60 region in the last hour.

The cross built on the previous day’s bounce from the vicinity of the 0.8800 mark, or fresh eight-month lows and gained some follow-through traction on Thursday. The British pound’s relative underperformance against its European counterpart could be attributed to the imposition of fresh COVID restrictions in the United Kingdom.

The UK government announced new measures to clamp down on travel from 22-high risk nations. Travellers from those countries, who could not be refused entry, would now have to quarantine for 10 days in government-provided accommodation. Adding to this, Prime Minister Boris Johnson indicated the COVID-19 lockdown in England would last until March 8.

That said, a weaker tone surrounding the shared currency might keep a lid on any meaningful upside for the EUR/GBP cross. The euro was weighed down by reports on Wednesday that markets are underestimating the odds of a further rate cut by the European Central Bank. This came after the ECB Governing Council member Klaas Knot’s comments on stronger euro.

Knot said that the exchange rate would take prominence if it threatens inflation outlook. Knot added that the ECB is keeping a watchful eye on the euro strength and that the central bank has tools to counter any further appreciation. Knot also hinted that the ECB could decide to cut interest rates to curb the common currency’s recent gains.

The ECB policymaker, Olli Rehn reiterated on Thursday that central bank is monitoring FX developments very closely and stands ready to use all instruments as appropriate. The constant jawboning might hold the euro bulls from placing aggressive bets and contribute towards capping gains for the EUR/GBP cross amid absent relevant market moving economic releases.

Technical levels to watch