EUR/GBP surges to 0.8430s, eyes weekly/monthly highs above 0.8450 after dovish BoE hike

• A dovish BoE hike saw EUR/GBP surge into the 84.30s, a strong rebound from previous lows in the 0.8360s.
• The pair is now eyeing a test of weekly/monthly highs in the 0.8450s.
• Though the bank hiked as expected, one rate-setter voted to hold and guidance for future hikes wasn’t as convincing.

In wake of a dovish hike from the Bank of England, sterling weakness has pushed EUR/GBP to session highs in the 0.8430s and the pair is now eyeing a test of earlier weekly highs just above the 0.8350 level. That marks a substantial turnaround from earlier session lows in the 0.8360s. A break above weekly highs just above 0.8450 would see EUR/GBP hit its highest level since early February and would open the door to a test of annual highs in the 0.8480 region printed back on February 7.

The BoE hiked interest rates by 25bps to 0.75% as markets had been expected, but one of the bank’s nine rate-setters (Jon Cunliffe) voted to leave rates unchanged, while the bank’s guidance on the need for further rate hikes sounded a little more unsure than back in February. Meanwhile, the bank’s near-term inflation forecast was given another hefty upgrade and is now seen peaking at around 8.0% YoY in Q2. That means deeply negative short-term interest rates aren’t going anywhere any time soon. This, when coupled with dampened expectations for further tightening this year, has been a toxic combination for GBP.

Sterling is unsurprisingly now the worst performing G10 currency on the day. Ahead this week, there isn’t much else on the economic calendar for EUR/GBP traders to focus on, meaning geopolitics and its broader impact on risk appetite will likely return to the forefront as the main driver of the pair. The theme of a potential Russo-Ukraine peace deal amid mixed/confusing reporting on the topic is a key investor focus right now.