The EUR/GBP cross experienced an intraday rebound from a new yearly low reached earlier this Monday, but is struggling to capitalize on the gains and is facing fresh selling pressure ahead of the mid-0.8700s.
At present, the cross has retreated slightly from its daily peak and is hovering around the 0.8725 area, which is a technically significant 200-day Simple Moving Average (SMA).
The Euro’s relatively strong performance is attributed to hawkish comments made by a member of the European Central Bank’s (ECB) governing council, which is acting as a tailwind for the EUR/GBP cross.
Dutch Central Bank President Klaas Knot stated on Sunday that interest rate hikes by the ECB are starting to have an impact, but more action will be necessary to control inflation. Knot added that he could support raising rates to 5% from the current 3.25%, or even higher if inflation proves to be more persistent than expected.
However, the intraday recovery lost momentum after the disappointing release of the Eurozone Sentix Investor Confidence index, which deteriorated more than anticipated to -13.1 in May from the previous month’s -8.7. The data sparked concerns about a recession and put a cap on the Euro’s upside.
Additionally, the bullish sentiment surrounding the British Pound limited gains for the EUR/GBP cross, as expectations for a 25 bps interest rate hike by the Bank of England (BoE) later this week continue to strengthen.
Despite the current rebound, cautious optimism is advised before confirming that the EUR/GBP cross has formed a near-term bottom and positioning for any meaningful recovery ahead of the key central bank event risk.
The current setup warrants caution for bulls, as the Sterling Pound continues to be in demand and a modest weakness in the US Dollar is also boosting its appeal.
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