EUR/GBP dives below 0.8450 to fresh 19-month lows

• The euro extends decline below 0.8450 to explore YTD lows nearing 0.8400.
• Risk appetite and BoE tightening expectations are underpinning the pound's rally.
• EUR/GBP: Below 0.8450 the pair could dive to 08281/39 – Credit Suisse.

The euro has extended its decline against a firmer British pound on Friday, breaking below the 0.8450 level for the first time since February 2020, to hit fresh lows at 0.8425 so far. The common currency has accelerated its decline this week and is set to post its third consecutive weekly decline.

Risk appetite, BoE hawkishness boosting the GBP

The sterling has been trading on a strong note over the last few days, with the market anticipating the Bank of England to lead the world’s major central banks and hike rates early next year.  The escalating energy prices have boosted consumer prices to levels way past the Bank of England’s target for price stability and some Bank officials, including Governor Andrew Bailey, have openly suggested the need for some action to tackle inflationary pressures. 

Furthermore, a risk rally, caused by upbeat quarterly earnings in the financial sector, has triggered substantial advances on the world’s major stock indexes easing concerns about inflation and supply chain bottlenecks. This has boosted the pound against the US dollar, which has increased bearish pressure on the euro.

EUR/GBP: Confirmation below 0.8437 might send the pair towards 0.8239 – Credit Suisse

The Credit Suisse FX Analysis team warn about a bearish confirmation below 0.8449/37: “Whilst we would again look for a fresh hold at 0.8449/37 and swing higher in the channel, a sustained move below 0.8437 would mark an acceleration in the downtrend, then exposing the key lows of 2019 and 2020 at 0.8281/39.”

Technical levels to watch