EUR/GBP rebounds from multi-month lows post-BoE, lacks follow-through

• EUR/GBP trimmed a part of intraday losses after the BoE announced its policy decision.
• The mention of negative rates in the policy statement acted as a headwind for the GBP.
• The upgrades in GDP and inflation forecasts capped any meaningful gains for the cross.

The EUR/GBP cross reversed the post-BoE slide to four-month lows and was last seen trading with only modest losses, around the 0.8515 region.

The cross once again showed some resilience below the key 0.8500 psychological mark and recovered over 20 pips from daily swing lows after the Bank of England announced its policy decision. As was widely expected, the BoE left its monetary policy settings unchanged, keeping interest rates and Asset Purchase Facility unchanged at 0.1% and £895 billion, respectively.

In the accompanying monetary policy statement, the UK central bank showed readiness to implement negative rates if needed. The BoE further added that it doesn't mean that a negative rate is the preferred policy. Nevertheless, the talk of negative rates turned out to be a key factor that capped gains for the British pound and extended some support to the EUR/GBP cross.

Meanwhile, there was only one MPC member, Michael Sanders, who dissented on the QE vote. This, along with upgrades in the near-term GDP growth and inflation forecasts acted as a tailwind for the sterling. This, in turn, should keep a lid on any attempted recovery for the EUR/GBP cross and warrants some caution for aggressive bullish traders.

Market participants now look forward to the post-meeting press conference, where comments by the BoE Governor, Andres Bailey, might infuse some volatility and allow traders to grab short-term opportunities around the EUR/GBP cross.

Technical levels to watch