EUR/GBP sticks to modest gains near daily high, around 0.8345 area post-Eurozone CPI

• EUR/GBP regained positive traction on Wednesday, though the uptick lacked follow-through.
• Weaker USD, stronger Eurozone CPI figures underpinned the euro and remained supportive.
• BoE rate hike bets continued acting as a tailwind for sterling and capped any meaningful gains.

The EUR/GBP cross maintained its bid tone through the first half of the European session and refreshed daily high, around the 0.8345 region post-Eurozone CPI.

The cross attracted some buying on Wednesday and reversed a part of the previous day's losses, though bulls seemed struggling to capitalize on this week's bounce from the 0.8300 mark, or the two-year low. The prevalent US dollar selling bias was seen as a key factor that extended some support to the shared currency, which was further underpinned by the stronger Eurozone consumer inflation figures.

In fact, the headline CPI surprised to the upside and jumped 5.1% YoY in January from 5.0% previous. This was well above the consensus forecast pointing to a reading of 4.4%. Adding to this, the core CPI arrived at 2.3% YoY during the reported month as against 1.9% expected and the 2.6% reported in December. this comes days after the German CPI surpassed expectations and rose 5.1% in January.

The supporting factor, however, was offset by a bid tone surrounding the British pound, which remained well supported by expectations for an additional interest rate hike by the Bank of England. This, in turn, held back bulls from placing aggressive bets around the EUR/GBP cross and kept a lid on any meaningful upside, warranting some caution before confirming that a near-term bottom has been formed.

Investors also seemed reluctant and might prefer to wait on the sidelines ahead of the key central bank event risks – the BoE policy decision and the ECB meeting on Thursday. Nevertheless, the EUR/GBP cross, so far, has managed to stick to its modest intraday gains and remains well within the striking distance of the weekly high, around the 0.8360 region touched in the previous day.

Technical levels to watch