EUR/GBP dives to the lowest level since May 2020, around 0.8780 post-BoE
- EUR/GBP came under intense selling pressure after the BoE announced its policy decision.
- The BoE portrayed an upbeat economic outlook and downplayed negative rate speculations.
- The slow rollout of COVID-19 vaccines weighed on the euro and contributed to the decline.
A sudden pickup in demand for the British pound dragged the EUR/GBP cross below the 0.8800 mark, or fresh multi-month lows in the last hour.
The cross witnessed a dramatic intraday turnaround from the 0.8840 region and fell over 50 pips after the Bank of England (BoE) announced its policy decision. At its first meeting of the year, the UK central bank decided to leave interest rates and the size of the Asset Purchase Facility unchanged at 0.10% and £895 billion, respectively.
In the accompanying statement, the BoE sounded optimistic about the economic outlook, which, in turn, was seen as a key factor that prompted some aggressive short-covering around the sterling. The BoE projected GDP to recover rapidly towards pre-virus levels over 2021 and inflation to rise quite sharply towards the 2% target in the spring.
Adding to this, the BoE indicated that negative interest rates may not be part of the latest cycle, though left the door open if economic conditions worsen. A hawkish BoE tilt comes amid optimism over the speedy rollout of COVID-19 vaccines in the UK, which provided a strong push to the British pound and exerted heavy pressure on the EUR/GBP cross.
On the other hand, the shared currency remained depressed amid concerns that the slow rollout of vaccine could hamper the economic recovery and was further pressured by sustained USD buying. This further contributed to the EUR/GBP pair's steep decline to the lowest level since mid-May, which took along some trading stops near the 0.8800 mark.
Market participants now look forward to the post-meeting press conference, where comments by the BoE Governor Andrew Bailey could infuse some volatility around the GBP pairs. This might eventually assist traders to grab some short-term opportunities around the EUR/GBP cross.
Technical levels to watch