EUR/GBP spikes above 0.8400, fresh weekly high after BoE warns of economic downturn

• EUR/GBP spikes to a fresh weekly high in reaction to the post-BoE selling around sterling.
• The BoE hikes interest rates by 50 bps and indicates that policy is not on a pre-set path.
• Investors now look forward to BoE Governor Bailey’s comments for a fresh impetus.

The EUR/GBP cross catches aggressive bids near the 0.8340 region and rallies to a fresh weekly high after the Bank of England announced its policy decision. The cross is currently trading just above the 0.8400 mark as the focus now shifts to the post-meeting press conference.

As was widely expected, the BoE's Monetary Policy Committee (MPC) voted unanimously to raise the benchmark rate by 50 bps - the most since 1995 - to 1.75%, or the highest level since late 2008. The British pound, however, witnesses a typical 'buy the rumour sell the fact' kind of trade as the jumbo rate hike was already priced in the markets.

Furthermore, the UK central bank - in the accompanying policy statement - said that the monetary policy is not on a pre-set path. This was accompanied by a warning that a UK recession will begin in the fourth quarter and last all the way through next year, suggesting that the BoE could adopt a more gradual approach to raising interest rates.

The aforementioned factors undermine sterling and remain supportive of the EUR/GBP pair’s strong intraday move up. Market participants now look forward to BoE Governor Andrew Bailey's comments for fresh clues about further rate hikes. This, in turn, would play a key role in influencing the EUR/GBP cross and help traders to grab short-term trading opportunities.

Technical levels to watch