EUR/GBP clings to gains near 0.8640-50 region, just below two-week tops

The EUR/GBP cross traded with a positive bias through the first half of the European session and was last seen hovering near daily tops, just below mid-0.8600s.

The cross edged higher for the second consecutive session on Tuesday and has now moved back closer to the two-week tops touched in the previous session. The shared currency's relative outperformance against its British counterpart could be attributed to the optimism over the gradual easing of lockdown restrictions in Europe.

On the economic data front, the German GDP was revised down to show a contraction of 1.8% during the first quarter as against 1.7% decline estimated previously. This, however, was largely offset by the forward-looking German IFO Business Climate Index, which rose more than anticipated to 99.2 in May from 96.2 in the previous month.

The data indicated that the economic upswing is gathering pace in the eurozone's largest economy. Adding to this, the Ifo economist, Klaus Wolhrabe said that the German economy should grow 2.6% in Q2 and 2.8% in Q3. This, in turn, further acted as a tailwind for the euro and remained supportive of the EUR/GBP pair's positive move.

On the other hand, fears over the long-term impact of Brexit and the economic damage from the pandemic kept the GBP bulls on the defensive. That said, the upbeat outlook for the UK economic recovery from the pandemic should help limit any sharp losses for the sterling and cap the upside for the EUR/GBP cross, at least for the time being.

Technical levels to watch