EUR/GBP rebounds after refreshing 13-month lows, flat-lined around 0.8565-70

• EUR/GBP quickly recovered intraday losses to the lowest level since February 2020.
• A combination of factors capped the GBP and extended some support to the cross.
• The market focus will remain glued to the upcoming BoE policy meeting on Thursday.

The EUR/GBP cross reversed an early European session dip to fresh multi-month lows and was last seen trading in the neutral territory, around the 0.8565-70 region.

Following a brief consolidation through the first half of the trading action on Wednesday, the cross witnessed some selling and dived to the lowest level since February 2020, around the 0.8540 region.
The shared currency remained depressed amid concerns that the temporary suspension of the COVID-19 vaccine could hinder the already fragile Eurozone economic recovery.

On the other hand, a combination of factors capped any meaningful upside for the British pound and helped limit deeper losses for the EUR/GBP cross. The fact that the European Union launched legal action against the UK for breaching the Norther Ireland protocol held the GBP bulls from placing any aggressive bets and extended some support to the cross.

The sterling was further undermined by the Bank of England Governor Andrew Bailey's overnight cautious remarks about the economic recovery. Bailey further added that the central bank is committed to buying bonds at an elevated pace. This was seen as an early signal for a possible downward revision of the BoE's economic forecast at the upcoming meeting on Thursday.

Meanwhile, the EUR/GBP cross has now recovered around 30 pips from intraday swing lows. That said, the overnight sharp pullback from one-and-half-week tops pointed to persistent selling interest at higher levels. Hence, any meaningful recovery still seems elusive, warranting some caution for aggressive bullish traders ahead of the central bank event risk.

Technical levels to watch