• Pound tumbles across the board on Friday.
• EUR/GBP is having best day since March 2020.

After a brief pullback, EUR/GBP resumed the upside and hit levels above 0.8900 for the first time since 2020. So far, the cross peaked at 0.8910. It is hovering around 0.8900, up 170 pips for the day, the best performance since March 2020. A sharp decline of the pound and risk aversion are driving the move.

Higher rates not helping GBP

On Thursday the Bank of England raised the key interest rate by half a percentage point to 2.25%. The UK government announced on Friday a massive tax cut package. The measures offered no real support for the pound. Also, UK bonds are collapsing on Friday.

“The implication is that a deteriorating budget deficit, and a persistently and likely continued deterioration in the current account will weigh negatively on GBP. In this environment, rising rates and favourable interest rate differentials are not supportive for GBP at this time. With risk sentiment and the global growth outlook worsening, the market may need to consider how non-trivial a move to parity for GBPUSD may be. Meanwhile, EUR looks better situated, for now, versus GBP. The move above 0.88 sets the stage for a higher new range bound by 0.90/0.92”, warned analysts at TD Securities.

Another weekly gain

The EUR/GBP is about to post the eighth weekly gains in a row. Initially, it was a hawkish European Central Bank and now is a weak pound that is driving the cross to the upside. The weekly close is set to be the highest since January 2020. The 0.8900/10 area is a strong resistance and a consolidation above could point to more gains even amid overbought conditions. No signs of stabilization or correction are seen at the moment.

Technical levels