EUR/GBP surrenders BoE rate cut-led gains to 5-month tops

• EUR/GBP witnessed a dramatic intraday turnaround amid a pickup in the GBP demand.
• Investors now look forward to the BoE presser and the UK macro data for fresh impetus.
• The UK annual budget should play a key role in determining the pair’s near-term direction.

The EUR/GBP cross faded an intraday bullish spike to five-month tops and dropped to the lower end of its daily trading range, around the 0.8740 region.

The British pound weakened across the board and pushed the cross to an intraday high level of 0.8848 after the Bank of England's surprise move to cut interest rates by 50 bps to 0.25%. The momentum, however, fizzled out rather quickly and the cross witnessed a dramatic intraday turnaround, falling over 100 pips from the daily swing highs.

The fact that the rate cut was announced just ahead of the UK annual budget was seen as a strong signal for the upcoming fiscal measures to support the UK economy. The coordinated effort seemed to have boosted investors’ confidence and turned out to be one of the key factors that led to a sudden pickup in the demand for the sterling.

Meanwhile, a mildly positive tone surrounding the shared currency might help limit deeper losses ahead of the BoE press conference and a slew of important UK macro data. This will be followed by the UK Chancellor of the Exchequer Rishi Sunak's first budget, which should play a key role in influencing the GBP price dynamics and provide a fresh impetus.

Technical levels to watch