EUR/GBP climbs further beyond 0.8700 mark, highest since February 2021

• EUR/GBP gained some traction for the fourth straight day and climbed to over a one-year high.
• The prospects for a less hawkish BoE and Scottish referendum continued weighing on sterling.
• Market participants look forward to the ECB's ad hoc meeting for some meaningful impetus.

The EUR/GBP cross built on the previous day's bullish breakout momentum through the 0.8600 mark and gained some follow-through traction for the fourth successive day on Wednesday. The strong move pushed spot prices to over a one-year high, around the 0.8720 region during the early European session.

The incoming UK macro data, especially the monthly GDP report released on Monday that showed a surprise contraction in April, suggests that the Bank of England may opt for a more cautious approach to raising interest rates. This, along with the UK-EU impasse over the Northern Ireland Protocol of the Brexit agreement and the prospects of a fresh referendum on Scottish independence, weighed on sterling.

On the other hand, the shared currency drew support from a more hawkish shift by the European Central Bank (ECB), signalling that it would deliver its first rate hike since 2011 in July. The ECB also left the door open for a potentially larger move in September, which was seen as another factor that continued acting as a tailwind for the EUR/GBP cross and remained supportive of the strong move up.

That said, the recent widening of the spread between the yields of Germany and embattled southern nations, particularly Italy, which soared to its highest in over two years, capped gains. Hence, the market focus will remain glued to the ECB's ad hoc Governing Council meeting to discuss the recent sell-off in government bond markets, scheduled at 0900 GMT on Wednesday.

Apart from this, traders will take cues from ECB President Christine Lagarde's scheduled speech later during the US session. The market attention would then shift to the BoE monetary policy meeting on Thursday, which will play a key role in influencing the near-term sentiment surrounding the British pound. This, in turn, would provide a fresh directional impetus to the EUR/GBP cross.

Technical levels to watch