EUR/GBP drops to over two-month lows, closer to mid-0.8400s

• EUR/GBP prolonged its recent bearish trajectory and dropped to over two-month lows.
• Hawkish BoE signals, easing fears of a fresh Brexit-related spat underpinned the sterling.
• Weaker USD benefitted the shared currency and could extend some support to the cross.

The EUR/GBP cross extended its steady intraday descent and dropped to over two-month lows, around the 0.8460 region during the first half of the European session.

The cross struggled to capitalize on its modest intraday uptick, instead met with some fresh supply ahead of the key 0.8500 psychological mark and now seems vulnerable to slide further. The British pound's relative outperformance comes amid a positive development surrounding the Northern Ireland protocol of the Brexit agreement.

A team of EU negotiators on Wednesday delivered a plan that offered to reduce customs checks and paperwork on British products intended for Northern Ireland to avert a new post-Brexit spat. The UK said it would look at the proposals seriously and constructively and called on both sides to engage in intensive talks rapidly.

Apart from this, hawkish signals from the Bank of England (BoE) officials, including Governor Andrew Bailey, further acted as a tailwind for the sterling. In fact,  the money market now seems to have fully priced in a 25bps BoE rate hike in December, which was seen as another factor that exerted pressure on the EUR/GBP cross.

On the other hand, the shared currency benefitted from the ongoing US dollar retracement slide from 13-year tops. This, however, did little to impress bullish traders, albeit might help limit any further losses for the EUR/GBP cross. Nevertheless, the fundamental backdrop favours bearish traders and supports prospects for further losses.

Technical levels to watch