EUR/GBP spikes to over two-week high after ECB raises key rates by 50 bps

• EUR/GBP gained strong positive traction and shot to over a two-week high on Thursday.
• The ECB raised interest rates by 50 bps and provided a goodish lift to the shared currency.
• Investors now await ECB President Lagarde’s press conference for some meaningful impetus.

The shared currency strengthened across the board after the European Central Bank announced its policy decision, lifting the EUR/GBP cross to over a two-week high. The cross was last seen trading around the 0.8575-0.8580 region, up nearly 1% for the day.

As was expected, the ECB's governing council took a larger first step on its policy rate normalisation path than signalled and opted to hike key interest rates by 50 bps vs. 25 bps expected. Policymakers judged that the frontloading to exit the negative interest rates regime was appropriate because of higher-than-expected inflation.

The ECB also unveiled a new tool called 'Transmission Protection Instrument' to prevent rising borrowing costs from sparking a debt crisis amid the ongoing political turmoil in Italy. The central bank said additional details of the anti-fragmentation toll would come in as a separate announcement during the post-meeting press conference.

Hence, traders would now closely scrutinize ECB President Christine Lagarde's comments, which will play a key role in influencing the common currency and provide a fresh impetus to the EUR/GBP cross. In the meantime, the resumption of Russian gas supply via the Nord Stream 1 pipeline and a jumbo ECB rate hike should continue to underpin the euro.

Technical levels to watch