EUR/GBP about to test monthly highs at 0.8455

• The euro bounces up strongly to retest six-week highs at 0.8455.
• BoE's dovish hike sends the pound lower.
• EUR/GBP seen around 0.8300 for the coming months – ING.

The euro has bounced up strongly against the British pound on Thursday to resume the near-term uptrend from the 0.8200 area, aiming for a fresh test to the six-week high at 0.8455.

BoE’s dovish hike hurts the pound

The sterling is losing momentum against its main rivals after the Bank of England’s monetary policy decision. The BoE has hiked rates by 25 basis points, to 0.75, for the third consecutive time, but it has struck a more cautious tone, which has undermined the pound.

The bank said that consumer inflation, now at 30-year highs, might reach levels beyond 8% this year and warned that the Russia - Ukraine conflict is likely to disrupt the global supply chain, increasing significantly the uncertainty around the economic outlook.

On the other end, the euro is showing strength, fuelled by the optimism about some progress in the peace talks in Ukraine that might lead to a cease-fire over the coming days.

EUR/GBP seen around 0.8300 over the coming months – ING

Looking forward, FX Analysis Team at ING does not see the euro appreciating significantly in the first half of the year: “Should the BoE continue to prefer a strong GBP to insulate against higher natural gas prices and the run-up in CPI to 8% this April, it could choose to delay a rate protest until later in the year(…) Our preference is for GBP holding gains through the first half of this year – and EUR/GBP continuing to trade near 0.83. If we are wrong and the rate protest comes today, EUR/GBP could spike to the 0.8480/8500 area.”

Technical levels to watch