- EUR/GBP gains traction for the third successive day on Thursday, though lacks bullish conviction.
- Worries about the UK government’s fiscal plans weigh on sterling and continue to offer support.
- Recession fears act as a headwind for the euro and keep a lid on any further gains for the cross.
The EUR/GBP cross attracts some buying for the third straight day on Thursday and sticks to its intraday gains through the early European session. The cross is currently placed near the top end of its daily trading range, around mid-0.8700s, and is looking to build on the recovery from a nearly three-week low touched on Tuesday.
Concerns about the new UK government's fiscal policy turn out to be a key factor behind the British pound's relative underperformance and offers some support to the EUR/GBP cross. UK Prime Minister Liz Truss defended the tax-cut plan at the Conservative Party conference on Wednesday, saying that cutting taxes is the right thing to do morally and economically.
Investors remain worried that the tax cuts will worsen inflation and force the Bank of England to turn more hawkish, creating additional headwinds for the economy amid looming recession risks. It is worth recalling that the markets have been pricing in the possibility of a bumper 100 bps rate hike by the UK central bank at its next monetary policy meeting in November.
The shared currency, on the other hand, benefits from the emergence of fresh US dollar selling. This is seen as another actor factor acting as a tailwind for the EUR/GBP cross. The uptick, however, lacks bullish conviction amid fears of a deeper economic downturn in the Eurozone, which were further fueled by the disappointing release of German Factory Orders on Thursday.
The mixed fundamental backdrop warrants some caution before placing aggressive bullish bets around the EUR/GBP cross and positioning for any further appreciating move. Market participants now look forward to the UK Construction PMI and the Eurozone Retail Sales figures for a fresh impetus. The focus, however, will be on the ECB Monetary Policy Meeting Accounts.
Technical levels to watch
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