EUR/GBP drops to over one-week lows, around mid-0.8900s on Bailey’s comments

• EUR/GBP witnessed some heavy selling for the fourth consecutive session on Tuesday.
• BoE Governor Bailey downplayed negative rate speculations and boosted the pound.
• Softer USD benefitted the shared currency, which might help limit losses for the cross.

A sudden pickup in demand for the British pound dragged the EUR/GBP cross to over one-week lows, around mid-0.8900s during the first half of the European session.

The cross extended its recent sharp pullback from the 0.9085 region and remained under some selling pressure for the fourth consecutive session on Tuesday. The downward trajectory accelerated further after the Bank of England (BoE) Governor Andrew Bailey downplayed speculation on negative rates.

Bailey said that there are a lot of issues with negative interest rates and no country has used it in ‘retail’ end of the financial market. BoE is doing a lot of work on whether negative rates are practical and outlook for interest rates hinges on productivity growth, Bailey added further.

Bailey went on to say that the impact of the latest coronavirus-induced lockdown appears less than that in spring last year and our best guess is that GDP over Q4 was flat to slightly down. The not so dovish comments provided a strong lift to the sterling and exerted pressure on the EUR/GBP cross.

On the other hand, the shared currency found some support from a softer tone surrounding the US dollar. This might turn out to be the only factor that might extend some support to the EUR/GBP cross and help limit any further losses amid absent relevant market moving economic releases.

Nevertheless, the EUR/GBP cross has now moved well within the striking distance of monthly lows and some follow-through selling should pave the way for additional weakness. The cross might then turn vulnerable and accelerate the slide further towards the 0.8900 round-figure mark.

Technical levels to watch