- EUR/GBP staged a modest bounce from 18-month lows touched earlier this Monday.
- The attempted recovery lacked any obvious fundament catalyst and follow-through.
- Positive Brexit development, hawkish BoE might underpin the GBP and cap gains.
The EUR/GBP cross extended its sideways consolidative price action and remained confined in a range below mid-0.8400s through the first half of the European session.
The cross stalled its recent downward trajectory to the lowest level since February 2020 and staged a modest bounce from the 0.8425-20 region on the first day of a new trading week. The uptick lacked any obvious fundamental catalyst and was solely led by some profit-taking by bearish traders amid slightly oversold conditions.
However, a combination of factors, so far, have failed to assist the EUR/GBP cross to register any meaningful recovery. Resurgent US dollar demand acted as a headwind for the shared currency. Apart from this, positive Brexit development and hawkish signals by the Bank of England collaborated to cap the upside for the cross.
After days of rising tensions, the European Union agreed to scrap most checks on goods and medicines arriving into Northern Ireland from the rest of the UK. Adding to this, the BoE Governor Andrew Bailey warned that rising energy prices means inflation will last longer and that monetary policy cannot solve supply-side problems.
Bailey further added that the BoE will have to act and must do so if we see a risk, particularly to medium-term inflation expectations. This, in turn, acted as a tailwind for the British pound and kept a lid on any meaningful recovery for the EUR/GBP cross amid absent market-moving economic data, either from the UK or the Eurozone.
From a technical perspective, the lack of any strong follow-through buying and the range-bound price action might still be categorized as a consolidation phase. This, in turn, suggests that the recent bearish trend might still be far from being over and warrants some caution before positioning for any meaningful appreciating move.
