EUR/GBP dips further to hit fresh session lows below 0.8440

• Euro's reversal from 0.8475 extends to session lows below 0.8440.
• The pound remains stronger fuelled by BoE hike expectations.
• EUR/GBP: Biassed lower while below 0.8530 - Commerzbank.

The euro continues heading south against the British pound on Friday. The pair has depreciated about 0.4% so far today, reversing Thursday’s gains after its rejection from 0.8475, to reach session highs below 0.8440 and approaching  

The pound remains firmer on BoE hike expectations

The sterling has regained the firm tone seen during the last weeks, buoyed by market expectations that the Bank of England might accelerate its monetary normalization plan to tackle inflation. This theory has been supported in the Autumn Budget Report when finance minister Rishi Sunak forecasted a strong post-pandemic recovery in the UK.

The European Central Bank, however, maintained its dovish stance in the face of the increasing inflationary pressures and pushed back any interest rate hike at least until late 2023, which has weighed on demand for the common currency.

ECB’s assumption that the currently high inflation levels will be temporary has been disputed by Eurozone CPI data earlier on Friday. Consumer inflation accelerated to a 4.1% year-on-year pace in September, more than twice the bank’s target for price stability, putting the ECB in an awkward situation. As a matter of fact, German 10-year Treasury yields rose by 8 basis points following the release of inflation figures, a signal that the market does not accept the bank’s dovish rhetoric.

EUR/GBP should break above 0.8530 to ease negative pressure – Commerzbank

Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank sees the pair biased lower while below 0.8530: “We have initial resistance at 0.8500. Above here lies the 55-day ma at 0.8530 and will need to regain this in order to alleviate downside pressure and to challenge the 0.8659/73 highs since May (…) Below 0.8400 attention should revert to the 0.8239 2019 low and the 200-month ma lies at 0.8159.”

Technical levels to watch