• EURGBP gains strong positive traction and climbs to over a one-week high on Thursday.
• The British Pound weakens in reaction to the BoE’s dovish hike and remains supportive.
• A stronger USD weighs heavily on the Euro and might keep a lid on any meaningful gains.

The EURGBP cross catches fresh bids during the mid-European session and spikes to a one-and-half-week high after the Bank of England announced its policy decision. The cross is currently trading above the 0.8700 mark and looks to build on its recent bounce from nearly a two-month low touched last week.

The British Pound weakens in reaction to a dovish BoE rate hike and turns out to be a key factor that provides a goodish lift to the EURGBP cross. As was widely anticipated, the UK central bank decided to raise interest rates by 75 bps, marking the biggest hike since 1989. The BoE, however, indicated a lower terminal peak than the 5.20% currently priced into markets. This, along with the fact that two policymakers voted for a less aggressive move, weighs on Sterling.

In the accompanying policy statement, the BoE lowers its Q3 growth projections from -0.1% to -0.5% but upped the forecast for 2022 GDP as a whole to +4.25% from +3.50% previously. The central bank, however, noted that there are considerable uncertainties around the outlook and expects GDP to fall at the end of 2023. Meanwhile, the BoE Governor Andrew Baily said during the post-meeting press conference that the bank rate may have to go up further because inflation is too high.

Bailey's remarks do little to impress the GBP bulls, though the heavily offered tone surrounding the shared currency, amid the post-FOMC US Dollar rally, keeps a lid on the EURGBP cross. Hence, any subsequent move up is more likely to confront stiff resistance and remain capped near the 0.8760-0.8780 supply zone. This, in turn, warrants some caution for aggressive bullish traders, at least for the time being, and positioning for a further intraday appreciating move.

Technical levels to watch