EUR/GBP sticks to modest gains around mid-0.8500s, lacks follow-through

• EUR/GBP attracted some dip-buying on Monday amid sustained selling around the GBP.
• The BoE’s gloomy economic outlook turned out to be a key factor weighing on sterling.
• A combination of factors undermined the euro and kept a lid on any meaningful upside.

The EUR/GBP cross held on to its modest intraday gains through the first half of the European session and was last seen trading near the top end of its daily range, just above the mid-0.8500s.

Following the previous session's pullback from the YTD peak, the EUR/GBP cross attracted fresh buying near the 0.8530 region on Monday, though the uptick lacked bullish conviction. The Bank of England's warning last week, saying that the economy was at the risk of a recession, suggested that the current rate hike cycle could be nearing a pause. This, in turn, was seen as a key factor behind the British pound's relative outperformance and acted as a tailwind for the cross.

That said, a combination of factors held back traders from placing aggressive bullish bets around the shared currency and kept a lid on any meaningful gains for the EUR/GBP cross, at least for now. Investors remain concerned that the European economy will suffer the most from the Ukraine crisis. Apart from this, the relentless US dollar buying interest and disappointing Eurozone Sentix Investor Confidence Index turned out to be key factors that weighed on the euro.

From a technical perspective, the post-BoE strong move up beyond the very important 200-day SMA and a descending trend-line extending from April 2021 support prospects for additional gains. Hence, some follow-through strength, towards reclaiming the 0.8600 mark for the first time since October 2021, remains a distinct possibility. In the absence of any relevant market-moving economic releases, traders will take cues from a scheduled speech by the BoE MPC member, Michael Saunders.

Technical levels to watch