EUR/GBP struggles near one-week low, bears flirt with 0.8500 mark

• EUR/GBP witnessed some selling for the second successive day on Wednesday.
• Stronger UK CPI print boosted the sterling and exerted some downward pressure.
• The downside seems cushioned ahead of the BoE/ECB meetings on Thursday.

The EUR/GBP cross dropped to over a one-week low during the early European session, with bears still awaiting a sustained break below the key 0.8500 psychological mark.

The cross edged lower for the second successive day on Wednesday and is now looking to extend the overnight rejection slide from the very important 200-day SMA. The British pound strengthened a bit following the release of hotter-than-expected UK consumer inflation figures and exerted some pressure on the EUR/GBP cross.

The UK Office for National Statistics reported that the headline CPI rose 0.7% MoM in November and accelerated to 5.1% YoY, well above consensus estimates. Adding to this, core CPI jumped 4% YoY from 3.4% previous, again surpassing market expectations. This, in turn, was seen as a key factor that underpinned the sterling.

The data, however, did little to revive hopes for an imminent interest rate hike by the Bank of England amid the imposition of fresh COVID-19 restrictions in the UK. On the other hand, the shared currency drew some support from a modest US dollar pullback from a one-week high and might help limit the downside for the EUR/GBP cross.

Investors might also be reluctant to place aggressive bets, rather prefer to wait on the sidelines ahead of the key central bank event risks. Both the European Central Bank and the BoE are scheduled to announce their respective policy decisions on Thursday. This, in turn, warrants some caution before positioning for any further downfall.

Technical levels to watch