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• EUR/GBP drifts lower for the second straight day and drops to a nearly one-week low.
• Euro Zone’s economic woes undermine the Euro and continue to weigh on the cross.
• Bets for less aggressive BoE rate hikes could limit losses ahead of the ECB on Thursday.

The EUR./GBP cross remains under some selling pressure for the second successive day on Tuesday and retreats further from a nearly two-month high, levels just above the 0.8700 mark touched last week. The downward trajectory remains uninterrupted through the early part of the European session and drags spot prices to a nearly one-week low in the last hour, which bears now awaiting a break below the 0.8600 round figure before placing fresh bets.

Concerns about the worsening economic downturn in Euro Zone turn out to be a key factor behind the shared currency's relative underperformance, which, in turn, is seen exerting downward pressure on the EUR/GBP cross. The market worries resurfaced following the disappointing release of the Euro Zone PMI prints on Monday, which showed business activity shrank much more than expected in July and reignited recession fears.

The common currency is further undermined by Tuesday's weaker-than-expected release of the German IFO Business Climate Index, which declined to 87.3 in July as compared to consensus estimates for a fall to 88.0 from the previous month's 88.6. The incoming data eases pressure on the European Central Bank (ECB) to hike interest rates after the anticipated 25 bps lift-off later this week and favours the EUR/GBP bears.

That said, diminishing odds for a more aggressive policy tightening by the Bank of England (BoE), bolstered by last week's softer UK consumer inflation figures, might weigh on the British Pound (GBP) and help limit losses for the EUR/GBP cross. Traders might also refrain from placing aggressive bets and prefer to move to the sidelines ahead of the key central bank event risk - the crucial ECB monetary policy meeting on Thursday.

Hence, it will be prudent to wait for strong follow-through selling before confirming that the EUR/GBP pair's recent goodish recovery move from its lowest level since August 2022 has run its course. That said, a sustained break and acceptance below the 0.8600 mark will be seen as a fresh trigger for bearish traders, paving the way for a further depreciating move.
 

Technical levels to watch

EUR/GBP

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