EUR/GBP flirts with multi-week high, remains below mid-0.8600s ahead of final Eurozone CPI

• EUR/GBP attracts dip-buying during the early European session, albeit lacks follow-through.
• Bets that the BoE will soon end its rate-hiking cycle undermine the GBP and act as a tailwind.
• The ECB's dovish rate-hike holds back bulls from positioning for any further appreciating move.

The EUR/GBP cross reverses an early European session dip to the 0.8620 region and climbs back closer to its highest level since August 11 touched this Tuesday. Spot prices currently trade around the 0.8630-0.8635 zone and look to build on the recent strong gains registered over the past two days.

Diminishing odds for more aggressive policy tightening by the Bank of England (BoE) continue to undermine the British Pound (GBP), which, in turn, assists the EUR/GBP cross to attract some dip-buying. In fact, BoE Governor Andrew Bailey had told lawmakers recently that the central bank is now "much nearer" to ending its run of interest rate increases. Furthermore, reviving recession fears and signs that the UK labour market is cooling, might put pressure on the BoE to pause its rate-hiking cycle soon.

That said, the current market pricing indicates around a 30% chance for another BoE rate hike in November. Moreover, and the first-rate cut is still not priced in until H2 2024. This, in turn, is holding back traders from placing fresh bearish bets around the GBP, which should keep a lid on any meaningful appreciating move for the EUR/GBP cross. Investors also seem reluctant and might prefer to wait on the sidelines ahead of the highly-anticipated BoE monetary policy meeting, scheduled on Thursday.

In the meantime, the European Central Bank's (ECB) dovish rate decision last Thursday might further contribute to capping the upside for the EUR/GBP cross. The ECB opted to hike rates for the 10th straight time, by 25 bps, taking its main rate to an all-time high level of 4%. The downgrading of CPI and GDP growth forecasts for 2024 and 2025, however, suggested that the 14-month-long policy tightening cycle could have reached its peak already and that further hikes may be off the table for now.

From a technical perspective, meanwhile, the overnight sustained break and acceptance above the 100-day Simple Moving Average (SMA) – for the first time since early May – could be seen as a fresh trigger for bullish traders. Hence, any corrective decline could now be seen as a buying opportunity and is more likely to remain limited. Traders now look to the release of the final Eurozone CPI print for short-term opportunities. The focus will then shift to the latest UK consumer inflation figures on Wednesday.

Technical levels to watch