EUR/GBP reaches fresh three-month highs above 0.8860 as the pound loses ground

The Euro finally managed to pierce the 0.8860 resistance area on Friday, extending its rebound from session lows at 0.8820 to fresh three-month highs at 0.8870 so far. The common currency is taking advantage of a moderately weak Sterling on a sluggish pre-holiday session.

The pair has shrugged off the mild risk aversion on the back of concerns about the consequences of the strong COVID-19 outbreak in China and the escalating tensions in Ukraine, to appreciate for the second consecutive day.

On the other hand, the Pound remains offered across the board, weighed by the grim economic perspectives in the UK and hopes that the Bank of England will slow down its monetary tightening path over the coming months.

The Sterling is about to close its worst year since 2016

The EUR/GBP is set to end the year with a 5.5% appreciation, favored by the broad-based pound weakness in 2022. The Sterling was hit hard by the political uncertainty during the last months of Boris Johnson's mandate and Liz Truss’ tax reform fiasco.

Johnson’s successor's Downing Street tax cut plan caused a historical Pound crash in October and prompted an intervention by the Bank of England to avert a credit crunch.

The Pound has firmed up somewhat in the fourth quarter, as the election of Rishi Sunak calmed the markets although the negative economic outlook coupled with soaring inflation is keeping GBP buyers at bay.

Technical levels to watch