EUR/GBP drops to over two-week lows, around mid-0.8400s

• EUR/GBP witnessed fresh selling following the release of UK employment details.
• Dovish ECB outlook further contributed to the euro’s relative underperformance.
• Brexit woes might hold back the GBP bulls from placing fresh bets and limit losses.

A sudden pickup in demand for the GBP dragged the EUR/GBP cross to over two-week lows, around mid-0.8400s heading into the European session.

Following a brief consolidation during the early part of the trading action on Wednesday, the EUR/GBP cross met with a fresh supply and turned lower for the third successive day. The latest leg of a sudden drop over the past hour or so followed the release of the UK monthly employment details, which provided a goodish lift to the British pound.

The UK Office for National Statistics reported that the ILO Unemployment Rate declined more than expected, to 4.3% in September from 4.5% in August. Additional details revealed that the Average Earnings Including Bonus rose by 5.8% in September, surpassing the consensus estimate of 5.6%, while Claimant Count fell 14.9K in October.

This comes on the back of the overnight hawkish comments by the Bank of England Governor Andrew Bailey, which, in turn, acted as a tailwind for the sterling. Speaking before the UK Parliament Treasury Select Committee, Bailey said that he was very uneasy about the inflation outlook and that all future policy meetings are now in play for a rate rise.

Conversely, the European Central Bank President Christine Lagarde continued to push back on market bets for tighter policy. This was seen as another factor behind the shared currency's relative underperformance. That said, the impasse over the Northern Ireland Protocol of the Brexit deal might cap gains for the GBP and help limit losses for the EUR/GBP cross.

Market participants now look forward to the release of the flash Eurozone GDP print for the third quarter of 2021 for some impetus. Later during the US session, traders will take cues from the ECB President Christine Lagarde's scheduled speech to grab some short-term opportunities.

Technical levels to watch