EUR/GBP bulls stay in charge

• EUR/GBP rallies despite the strong DXY performance on Thursday.
• GBP has been under pressure in a risk-off setting.

EUR/GBP is flat in Asia following a dip late in the day from the New York session highs of 0.8565.

The cross moved up from a low of 0.8506 despite pressures from the US dollar and a soft euro as a result of the DXY, an index heavily weighted against the euro vs the dollar, rallying to fresh cycle highs. 

Meanwhile, GBP/USD moved to the lowest levels since mid-July following the prior day's weakness in inflation readings and the prospects of the Federal Reserve tightening monetary policy sooner.

Minutes from the US Federal Reserve's latest meeting released on Wednesday showed policymakers at the central bank expect to reduce pandemic-era stimulus before the year is out.

Meanwhile, despite that the UK inflation data showed a sharper slowdown than expected,  investors are more focused more on the state of the labour market.

The Bank of England has noted the prospects of higher inflation due to the easing of lockdown measures which in turn puts the BoE and Fed on more even keel than some other central bank divergences. 

However, a Reuters poll found that economists expect the BoE to wait until 2023 before raising rates.

Nevertheless, this leaves scope for the pound to stabilise in the absence of any deterioration of the economic recovery in the UK or a worsening epidemic.

Meanwhile, the euro is going to face pressures given a more problematic epidemic in the eurozone and due to a more dovish tilt at the European Central bank. 

''We retain our long-held year-end forecast of EUR/GBP0.84. While better UK economic data could open up downside potential in the currency pair, another hawkish step would likely be needed from the Bank to trigger a strong downside move,'' analysts at Rabobank forecasted.