EUR/GBP trades with modest intraday gains, lacks follow-through beyond mid-0.8500s

• EUR/GBP regained some positive traction on Friday and recovered a part of the overnight losses.
• Reduced BoE rate hike bets undermined the British pound and provided a modest lift to the cross.
• A stronger USD weighed on the shared currency and held back bulls from placing aggressive bets.

The EUR/GBP cross traded with a mild positive bias through the first half of the European session, albeit seemed struggling to capitalize on the move beyond mid-0.8500s.

The cross attracted some buying on Friday and reversed a part of the previous day's sharp corrective slide from the vicinity of the 0.8600 mark, or over a two-month high. The British pound's relative underperformance comes amid diminishing odds for an imminent interest rate hike by the Bank of England (BoE).

Against the backdrop of persistent Brexit-related uncertainties, the imposition of fresh COVID-19 restrictions in the UK could force the BoE to delay its decision to hike interest rates. This, along with mostly disappointing UK macro releases undermined the sterling and provided a modest lift to the EUR/GBP cross.

The UK Office for National Statistics reported that the economic growth decelerated to 0.1% in October from a 0.6% rise reported in the previous month, missing expectations for a reading of 0.4%. Adding to this, the total industrial output dropped 0.6% in October as against a 0.1% increase anticipated and undermined the sterling.

Separately, the headline German CPI matched original estimates and fell 0.2% in November. The yearly rate stood at 5.2%, though did little to impress the euro bulls. The prevalent US dollar bullish sentiment exerted some pressure on the shared currency and kept a lid on any meaningful gains for the EUR/GBP cross.

This comes on the back of this week's rejection near a descending trend-line resistance extending from April swing high and warrants some caution for aggressive bullish traders. Hence, it will be prudent to wait for a strong follow-through buying before positioning for the resumption of a two-week-old upward trajectory.

Technical levels to watch