EUR/GBP selling has set off a panic short-covering rally in Cab;e this afternoon, helping drag the greenback a bit lower across the board. The pound took out stops above 1.4750 and again above 1.4800 setting off a scramble. EUR/GBP overcame 0.9100 as well, setting off a fresh wave of long liquidation.
The period headed into the New year was dominated by the push for parity in EUR/GBP predicated on the notion that the ECB was on hold and the BOE was going to continue to ease. That bet was blown to bits over the weekend when Papdemos made plain that the ECB would have to cut again soon. Evaporating inflationary pressure in the eurozone has accelerated the slide in EU interest rates, closing the rate differential with the UK and supporting the pound. Throw in a large GBP-positive M&A deal closing this week and the tide turns quickly.
Cable has reached 1.4890 in thin trade and eyes recent highs at 1.4990 (Dec 22) as next resistance.