- A combination of factors assisted EUR/GBP to stage a goodish bounce from multi-month lows.
- A possible extension of lockdowns in Britain, downbeat UK macro data weighed on the sterling.
- Hawkish ECB, mostly upbeat Eurozone PMIs underpinned the euro and remained supportive.
The EUR/GBP cross refreshed daily tops during the early European session, with bulls now looking to build on the momentum further beyond the 0.8900 mark.
The cross gained some strong positive traction on the last trading day of the week and recovered further from eight-month lows, around the 0.8830 region touched in the previous session. The British pound turned out to be the worst-performing currency on Friday, which, in turn, prompted some short-covering around the EUR/GBP cross.
The sterling was weighed down by indications that lockdown restrictions in Britain will be extended and lost some additional ground following the release of downbeat UK Retail Sales figures. In fact, the headline figures showed a growth of 0.3% in December, while core sales increased by 0.4% MoM, both missing consensus estimates.
On the other hand, the shared currency was underpinned by a slight hawkish tweak by the European Central Bank (ECB) on Thursday. In the post-meeting press conference, the ECB President Christine Lagarde said the central bank might not need to exhaust the €1.85 trillion PEPP envelope if favourable financing conditions can be maintained.
The euro found additional support from German data, which showed that business activity in the services sector contracted less than anticipated in January. The IHS Markit flash German Services PMI came in at 46.8 for the reported month as against consensus estimates pointing to a fall to 45.3 from 47.0 recorded in December.
Meanwhile, the gauge for the German manufacturing sector missed expectations and fell to 57 in December from 58.3 previous. Separately, the Eurozone flash manufacturing PMI came in slightly better than expected but was largely offset by a further contraction in the region’s dominant services industry.
Friday’s economic docket also features the release of the flash UK PMI prints. This, along with developments surrounding the coronavirus saga, might influence the GBP price dynamics and produce some short-term trading opportunities around the EUR/GBP cross.
Technical levels to watch
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