EUR/GBP tumbles back closer to 0.8500 mark, or multi-month lows on BoE’s Saunders

• EUR/GBP witnessed a dramatic intraday turnaround in reaction to comments by BoE’s Saunders.
• Saunders floated the possibility for an earlier rate hike and provided a strong lift to the sterling.
• Sustained weakness below the 0.8500 mark will set the stage for an extension of the downfall.

The EUR/GBP cross witnessed some aggressive selling and dived to fresh daily lows, around the 0.8515 region in reaction to hawkish comments by the BoE policymaker Michael Saunders.

The cross built on the previous day's solid rebound from over three-month lows and gained strong follow-through traction through the first half of the trading action on Thursday. The momentum pushed the EUR/GBP cross to fresh weekly tops during the early European session, though lacked any follow-through, instead met with some aggressive supply near the 0.8565-70 region.

The British pound witnessed a dramatic intraday turnaround after the Bank of England policymaker, Michael Saunders, floated the possibility for an earlier rate hike. During a scheduled speech at an online event, Saunders said that the question of whether to curtail our current asset purchase program early will be under consideration at our forthcoming meetings.

Saunders further added that options to withdraw stimulus include curtailing QE (ending it in the next month or two) and/or further policy action next year. Adding to this, he said that the activity seems to have recovered a bit faster than the May forecast and risks lie on the side that the output gap will close earlier than previously expected.

This comes on the back of Wednesday's hotter-than-expected UK CPI report and mostly upbeat UK monthly employment details released earlier this Thursday. The developments further fueled speculations that the BoE will consider scaling back its huge stimulus program sooner, which, in turn, forced investors to cover their bearish positions around the sterling.

With the sharp intraday fall of over 50 pips, the EUR/GBP cross has now dropped back closer to multi-month lows support, just ahead of the key 0.8500 psychological mark. The mentioned level should now act as a key pivotal point for short-term traders, which if broken decisively should pave the way for an extension of the ongoing downward trajectory.

Technical levels to watch