EUR/GBP hovers around 0.8400, ECB’s Lagarde, BOE’s Bailey eyed

• EUR/GBP struggles for clear direction during second day of small losses.
• ECB policymakers remain divided over next moves, covid woes weigh on policy tightening.
• BOE’s Bailey has more positives even as New Year surge warning challenges the hawks.
• Germany’s final Q3 GDP, covid headlines become key amid US holiday.

EUR/GBP remains lackluster, slightly weak, during the early European morning on Thursday. The cross-currency pair takes rounds to yearly low flashed on Monday amid fresh coronavirus fears from the Eurozone.

After Austria and the Netherlands, record-high cases in Germany triggered multiple warnings to recall the lockdowns from the region. “Coronavirus infections broke records in parts of Europe on Wednesday, with the continent once again the epicenter of a pandemic that has prompted new curbs on movement and seen health experts push to widen the use of booster vaccination shots,” said Reuters.

It’s worth noting that the virus resurgence eases the pressure off the European Central Bank (ECB) to follow their Western counterparts and hence exert additional downside pressure on the EUR/GBP.

In the latest comments, governing council member and Slovenian central bank head Boštjan Vasle joins policymaker Fabio Panetta and Robert Holzmann to shrug off tapering and rate hike talks. On the contrary, European Central Bank governing council member and Bundesbank head Jens Weidmann said on Wednesday that upside risks to inflation dominate in both Germany and the rest of the Eurozone.

While the bloc struggles from covid, the UK isn’t much behind as the daily infections jump above 43,000 while the virus-led death toll eased to 149. That said, Sky News quotes British Health Experts to cite a risk of New Year surge in the COVID-19 cases.

Other than the coronavirus-led pessimism and the resulting more pressure on the ECB to extend easy money policies, versus the upbeat British fundamentals, the recent Brexit headlines also favor the Sterling to stay firmer. Although the No.10 Downing Street spokesperson cites a substantial gap between the UK and EU views regarding Northern Ireland, the British Prime Minister Boris Johnson’s readiness, per Reuters, to work hard to solve the issue on hand keeps market players optimistic. That said, the British policymakers have also given consent to Irish PM Michael Martin that they won’t trigger Article 16 until the talks collapse.

Even so, US holiday and a light calendar, with only final readings of the German Q3 GDP, expected to confirm 1.8% forecast, challenge the EUR/GBP moves ahead of the speeches from ECB President Christine Lagarde and BOE Governor Andrew Bailey.

While Bailey is likely to cheer the latest improvement in the UK’s fundamentals to back the hawkish hopes, ECB’s Lagarde may have to accept the downside risks to the bloc’s economy due to the coronavirus, which in turn could weigh on the EUR/GBP prices.

Technical analysis

EUR/GBP needs to cross the 0.8425 hurdle, comprising multiple levels marked since mid-October, to convince short-term buyers. Until then, risks to witness a price plunge towards a 2020 low near 0.8280 can’t be ruled out.