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  • EUR/GBP edged higher on Thursday and recovered a major part of the overnight losses.
  • A modest pickup in demand for the shared currency provided a modest lift to the cross.
  • The upbeat UK economic outlook might underpin the GBP and cap any further gains.

The EUR/GBP cross edged higher through the early European session and climbed to fresh daily tops, around the 0.8645 region in the last hour.

The cross managed to regain some positive traction on Thursday and recovered a major part of the previous day’s losses. This marked the third day of an uptick in the previous four and was sponsored by the emergence of fresh buying around the euro amid optimism over the gradual easing of COVID-19 restrictions in Europe.

On the other hand, the ongoing concerns over Brexit acted as a tailwind for the British pound. This was seen as another factor that provided an additional boost to the EUR/GBP cross. That said, a combination of factors might hold bulls from placing aggressive bets and keep a lid on any runaway rally, at least for now.

Eurozone government bonds staged a strong rally after the ECB policymaker Fabio Panetta downplayed expectations that the central bank would react to improving economic forecasts. Panetta said that a discussion about phasing out the PEPP is still premature and a withdrawal of policy support would risk suffocating the recovery.

Apart from this, the upbeat outlook for the UK economy should continue to underpin the sterling and further collaborate towards capping gains for the EUR/GBP cross. The impressive pace of coronavirus vaccinations in the UK bodes well with the government’s plan to end restrictions fully on June 21 and fueling expectations for a strong recovery.

There isn’t any major market-moving economic data due for release on Thursday, either from the Eurozone or the UK. This further makes it prudent to wait for some strong follow-through buying before traders start positioning for an extension of the recent move up from the 0.8560 region, or monthly lows touched on May 12.

Technical levels to watch