EUR/GBP pares early losses to 1-1/2 week lows, BoE in focus

   “¢   Disappointing UK manufacturing PMI prompts some selling around the GBP.
   “¢   The latest Brexit optimism quickly fades and exerts additional downward pressure.
   “¢   Investors now seemed reluctant to place aggressive bets ahead of BoE policy update.
 
The EUR/GBP cross maintained its offered tone through the mid-European session, albeit has managed to recover a part of the early steep decline to 1-1/2 week lows

The cross stalled its sharp retracement slide from over one-month tops, set on Tuesday, and found decent support near the 0.800 handle following the release of disappointing UK manufacturing PMI print, coming in at 51.1 for October – the lowest level since July 2016.

The British Pound lost some additional ground after UK officials were quoted saying that the report by the Times of London on a breakthrough on financial services is “unsubstantiated.”  

The coupled with comments by Senior EU Negotiator Sabine Weyand, casting doubt on hopes of a Brexit deal being reached within three weeks, poured cold water on hopes of a Brexit deal being reached by 21 November and provided an additional lift.

The cross spiked to mid-0.8800s in a knee-jerk reaction the latest Brexit headlines but lacked any strong follow-through as market participants seemed to refrain from placing any aggressive bets ahead of the latest BoE monetary policy update.

The central bank is universally expected to leave benchmark rates unchanged on Thursday and hence, the key focus will be on the quarterly inflation report (QIR). Apart from the latest forecast, Governor Mark Carney’s post-meeting press conference might infuse some volatility across the GBP pairs.  

The key event, however, might turn out to be a non-event and is likely to be overshadowed by the incoming Brexit headlines, which might continue to act as an exclusive driver of the near-term sentiment surrounding the British Pound.

Technical levels to watch

A follow-through recovery beyond mid-0.8800s is likely to get extended towards the 0.8875 intermediate level en-route the 0.8900 handle and the 0.8935-40 supply zone. On the flip side, the 0.8800 handle might continue to protect the immediate downside, which if broken could accelerate the fall towards 0.8775 support ahead of mid-0.8700s and multi-month lows, around the 0.8725-20 region.