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Forex: EUR/GBP plunges below 0.8600 on ECB and BoE

After the EUR/GBP plunge on incoming BoE Governor Carney's speech before the UK Parliament to test the 08600 mark, the 0.8636 opening price became resistant to any upside attempt. Then, ECB's Draghi press conference did the rest. The cross eased below the 0.8600 and found its current low at 0.8560 (-0.88% on the day).

Draghi said what was expected of him, attributing euro's strength to return of confidence, and that the ECB is independent to any calls for an exchange rate policy. He also said the central bank's stance is accomodative, but credit remains tight for small companies, and hasn't changed the position on negative rates.

On the UK side, the MPC decided to keep the key rate at 0.5% and the asset purchases at £375B, as expected by investors, in the meeting of February 7. “The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the Funding for Lending Scheme – and some improvement in the global environment”, said the statement, eyeing risks to the downside, not least because of the challenges facing the euro area. 

Incoming BoE Governor Carney assured that he would not alter significantly the central bank's current monetary policy strategy but that he was in favor of introducing more stimulus for a period of time and communicating it in order to help manage market expectations. He also said that the central bank must exit unconventional policy.

UBS analysts are bullish on the EUR/GBP: “As long as support at 0.8554 holds, the risk is for a break above resistance at 0.8717, extending the uptrend to 0.8831”, wrote analyst Geoffrey Yu.

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