• A combination of factors assisted EUR/GBP to attract buying for the second straight day on Thursday.
• The UK political turmoil undermined the GBP and extended some support amid ECB rate hike bets.
• The focus remains glued to the ECB decision and Lagarde's comments at the post-meeting presser.

The EUR/GBP cross attracted some buying for the second successive day on Thursday and has now recovered a major part of its weekly losses. The cross maintained its bid tone through the first half of the European session and was last seen trading just above mid-0.8500s.

The latest UK political jitters continued undermining the British pound, which, in turn, was seen as a key factor that extended some support to the EUR/GBP cross. It is worth recalling that British Prime Minister Boris Johnson survived the no-confidence vote on Monday, albeit by a smaller margin. Given that many MPs from within the Conservative Party voted against him, the developments have raised uncertainty over Johnson’s future as the UK Prime Minister.

On the other hand, expectations for imminent interest rate hikes by the European Central Bank (ECB) contributed to the shared currency's relative outperformance. This offered additional support to the EUR/GBP cross, though traders seemed reluctant to place aggressive bullish bets ahead of the key central bank event risk. The ECB is scheduled to announce its monetary policy decision on Thursday and is expected to lay the groundwork for an interest rate hike in July.

The prospect of a 50 bps rate hike has gathered steam following the recent data showing that inflation hit a record high in May. Furthermore, the markets are currently betting on a 75 bps of tightening by September and a total of 130 bps by year-end, implying a jumbo rise at one of the four meetings after June. Hence, ECB President Christine Lagarde's comments at the post-meeting press conference will be scrutinized closely and provide some meaningful impetus to the EUR/GBP cross.

Technical levels to watch