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  • EUR/GBP regained strong positive traction on Thursday amid fading hopes for a Brexit-deal.
  • The strong momentum got an additional boost after the ECB announced its policy decision.
  • Investors now look forward to the incoming Brexit-related headlines from the EU Summit.

The EUR/GBP cross added to its strong intraday gains and shot to the 0.9125-30 region in the last hour, back closer to multi-week tops set on Tuesday.

A key summit between the UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen ended with no apparent progress. Moreover, officials cited that both sides remain far apart on key issues like fisheries and level playing field. The not so optimistic developments dampened prospects for a last-minute post-Brexit trade deal. This, in turn, prompted some fresh selling around the British pound and was seen as one of the key factors that assisted the EUR/GBP cross to regain positive traction on Thursday.

The intraday picked up pace after the European Central Bank, as was widely expected, left its benchmark interest rates unchanged at the end of the December meeting. The ECB increased the size of its Pandemic Emergency Purchase Program (PEPP) by €500 billion to a total of €1,850 billion. Adding to this, the ECB also extended the horizon for net purchases under the PEPP by 9-months to March 2022. The ECB did little to surprise the market as the additional stimulus was already priced in, which, in turn, provided a modest lift to the shared currency.

In the post-meeting press conference, the ECB President Christine Lagarde said that the increase in PEPP reflects fallout in economic activity and added that the incoming data suggest a more pronounced near-term impact of the pandemic. She reiterated that uncertainty remains high and that the ECB is reading to adjust all instruments as needed. The dovish comments, however, were offset by an upward revision of GDP growth projections through 2022.

  • ECB now sees 2020 GDP at -7.3% vs. -8% in September.
  • 2021 GDP growth at 3.9% vs. 5% in September.
  • 2022 GDP growth at 4.2% vs. 3.2% in September.

It will now be interesting to see if the EUR/GBP cross is able to capitalize on the strong momentum or bulls opt to lighten their positions as the focus remains on developments surrounding Brexit saga. The European Council programme has been amended and leaders will now discuss Brexit later this Thursday. The incoming headlines will influence the GBP price dynamics and produce some meaningful trading opportunities around the EUR/GBP cross.

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