EUR/GBP recovers from the post-BoE slide to two-year low, back above 0.8300 after ECB

• EUR/GBP dropped to a fresh two-year low after the BoE delivered a hawkish rate hike.
• The ECB left its policy settings unchanged and failed to impress bulls or lend any support.
• Investors now await ECB President Lagarde's remarks before placing fresh directional bets.

The EUR/GBP cross recovered a few pips from the post-BoE slump to a fresh two-year low and moved back above the 0.8300 mark after the ECB announced its policy decision.

The cross witnessed aggressive selling after the Bank of England, as was anticipated, hiked the benchmark interest rate by 25 bps to 0.50% this Thursday. The hawkish vote distribution, wherein four MPC members favoured a 50 bps rate hike, provided a strong lift to the British pound and exerted heavy pressure on the EUR/GBP cross.

Adding to this, policymakers also vote 9-0 to start unwinding the £895 billion quantitative easing program. In the post-meeting press conference, the BoE Governor Andrew Bailey said that some further modest tightening is likely in the coming months, which was seen as another factor that continued acting as a tailwind for sterling.

Conversely, the European Central Bank left its monetary policy settings unchanged and failed to inspire the euro bulls or lend any support to the EUR/GBP cross. The downside, however, remains cushioned as investors await the ECB President Christine Lagarde's remarks amid bets for some policy action to combat surging inflation.

It is worth recalling that the Eurozone CPI accelerated to another record high and arrived at 5.1% YoY in January. The data fueled speculations that the ECB could deliver the first rate-hike of 10 bps by July. The markets have also been pricing in a total of 30 bps rate hike by the end of 2022, setting the stage for a disappointment.

The fundamental backdrop seems tilted in favour of bearish traders, though it will be prudent to wait for some follow-through selling below the 0.8380 region before positioning for any further decline. The EUR/GBP cross might then accelerate the downward trajectory towards the 0.8300 round-figure mark en-route the 0.8275 support zone.

Technical levels to watch