EUR/GBP retreats sharply from above 0.8700 toward 0.8600 after ECB meeting

• Euro weaker and EZ yields lower after ECB emergency meeting.
• Pound steady ahead of the BoE meeting.
• EUR/GBP looks to more gain while above 0.8600.

The EUR/GBP turned to the downside in Wednesday after hitting at 0.8720, the highest level since February 2021. The euro retreated to as low as 0.8613 following the European Central Bank emergency meeting.

EUR/GBP still bullish despite retreat

The ECB surprised market participants with an emergency meeting although the outcome showed no majors surprises. The central bank “decided that it will apply flexibility in reinvesting redemptions coming due in the PEPP portfolio, with a view to preserving the functioning of the monetary policy transmission mechanism” and also “decided to mandate the relevant Eurosystem Committees together with the ECB services to accelerate the completion of the design of a new anti-fragmentation instrument for consideration by the Governing Council.”

Analysts at Rabobank point out the ECB strengthened its commitment to contain Eurozone spreads. “However, the statement leaves much uncertainty over how powerful the ECB’s intervention will actually be. We expect more clarity in July.” Stocks markets in Europe rose on the back of the meeting and Eurozone bonds rose sharply. The 10-year Italian yield is at 3.90%, falling 8.50%.

On Thursday will be the turn of the Bank of England. The consensus if for a rate hike of 25bps. Economists at TD Securities expected the BoE to continue with a cautious message. “But with 4 votes to hike by 50bps, we think the meeting will mark a slightly hawkish pivot, and we look for further 25bps hikes through year-end.”

In a few hours, on Wednesday the Federal Reserve announce its decision that could trigger volatility. Ahead of the FOMC statement, EUR/GBP is hovering around 0.8620/25, away from the top but still above the 0.8600 key level. The outlook is biased to the upside while above 0.8550.

Technical levels