EUR/GBP slides below 0.8400, lowest since February 2020 on stronger UK CPI

• EUR/GBP witnessed heavy selling for the fourth successive day and dropped to fresh YTD lows.
• Hotter-than-expected UK CPI reinforced BoE rate hike expectations and boosted the sterling.
• Brexit woes might hold back traders from placing aggressive bets amid oversold conditions.

The EUR/GBP cross dived to the lowest level since February 2020 in reaction to hotter-than-expected UK CPI print, albeit recovered a few pips thereafter and was last seen hovering around the 0.8400 mark.

The cross remained heavily offered for the fourth successive day on Wednesday and extended its recent rejection slide from the very important 200-day SMA. The latest leg of a sudden drop over the past hour or so followed the release of UK consumer inflation figures, which reassured an immediate rate hike by the Bank of England in December.

The UK Office for National Statistics (ONS) reported that the headline CPI accelerated to a 4.2% YoY rate in October as against expectations for a rise to 3.9% from 3.1% previous. Adding to this, the core inflation gauge (excluding volatile food and energy items) also surpassed consensus estimates and rose 3.4% YoY during the reported month.

This comes on the back of Tuesday's mostly upbeat UK employment report, which showed that the unemployment rate declined to 4.3% in September and validated hawkish BoE expectations. On the other hand, the European Central Bank President Christine Lagarde stuck to the transitory inflation narrative and pushed back on market bets for tighter policy.

The divergence in monetary policy stance between the ECB and the BoE further contributed to the shared currency's underperformance. That said, worries that the UK government would trigger Article 16 of the Northern Ireland Protocol held back the GBP bulls from placing fresh bets and might help limit losses for the EUR/GBP cross, at least for now.

Technical levels to watch