EUR/GBP hangs near two-year low, around 0.8335 post-Eurozone Sentix Investor Confidence

• EUR/GBP met with a fresh supply on Monday and dropped back closer to a near two-year low.
• Receding Omicron fears, rising BoE rate hike bets underpinned the sterling and exerted pressure.
• Upbeat Eurozone Sentix Investor Confidence Index extended support to the euro and the cross.

The EUR/GBP cross extended its steady intraday descent through the first half of the European session and dropped back closer to a near two-year low, around the 0.8335 region in the last hour.

The British pound continued with its relative outperformance against its European counterpart amid hopes that the Omicron outbreak won't derail the UK economy. Apart from this, the divergent Bank of England (BoE) and the European Central Bank (ECB) monetary policy outlooks prompted fresh selling around the EUR/GBP cross on Monday.

In fact, the BoE delivered a surprise rate hike in December and the markets expect another three to four rate increases in 2022. Conversely, ECB President Christine Lagarde said last month that inflation will settle below the 2% target in 2022 and a rate hike wouldn’t be the correct response to the current bout of price growth.

On the economic data front, the Eurozone Sentix Investor Confidence Index unexpectedly improved during the first month of 2022 and jumped to 14.9 from 13.5 in December. Apart from this, a strong pickup in the US dollar demand acted as a headwind for both the euro and the sterling. This might help limit any deeper losses for the EUR/GBP cross.

Even from a technical perspective, the RSI (14) on the daily chart has moved on the verge of breaking into the oversold territory, further warranting some caution before positioning for any further slide. This, in turn, suggests that the EUR/GBP cross is more likely to prolong its range-bound price action witnessed over the past four trading sessions.

Technical levels to watch