EUR/GBP consolidates significant losses on rising BoE rate hike expectations

EUR/GBP dropped on Thursday more than a hundred pips and is headed for the lowest daily close since July 19. The pair tumbled on the back of a rally of the pound across the board boosted, first by Bank of England’s rate decision and then, by comments from Governor Mark Carney. 

As expected, the BoE left monetary policy unchanged with a vote 7-2  to keep interest rates at record low level of 0.25%. Market participants perceived the statement and the minutes as hawkish. “The notable shift towards “a majority of members” judging that “some withdrawal of stimulus was likely to be appropriate in coming months” implies a closer voting bias that could quickly shift to a majority call for a policy shift”, said Timothy Riddell, an analyst at Westpac. 

Bank of England sends hawkish signal to markets - Danske Bank

Then, Carney reaffirmed what the BoE said in the statement and added that the possibility of a rate hike has risen. The comments pushed the pound further to the upside. 

BoE's Carney: Possibility of a rate hike has definitely increased

EUR/GBP bottomed at 0.8865, the lowest in almost two months. Near the end of the US session was trading at 0.8890, headed toward the fifth daily decline in a row and having the worst performance in months. 

Technical levels 

To the downside, support levels might be located at 0.8865 (daily low), 0.8825 (Jul 19 low) and 0.8790 (Jul 7 high). On the flip side, resistance might now be seen 0.8920 (Aug 1 & 3 low), 0.8980 (Sep 12 & 13 low) and 0.9045 (Sep 14 high).