- EUR/GBP added to the overnight losses and remained depressed for the second straight day.
- The intraday selling picked up pace after the UK April Manufacturing PMI was revised higher.
- Resurgent USD demand weighed on the euro, which further contributed to the selling bias.
The EUR/GBP cross added to its intraday losses and dropped to near two-week lows, around mid-0.8600s during the first half of the European session.
The cross struggled to capitalize on its early uptick, instead met with some fresh supply near the 0.8675-80 area and turned negative for the second consecutive session on Tuesday. The British pound’s relative outperformance against its European counterpart could be solely attributed to the optimism over a strong economic recovery in the UK, bolstered by the easing of COVID-19 restrictions.
The upbeat outlook was reinforced by the final UK Manufacturing PMI, which was revised higher to 60.9 for April as against the flash estimate for a reading of 60.7. This comes after the UK Prime Minister said on Monday that the government remains on track to go ahead with further restriction loosening on June 21, which continued acting as a tailwind for the sterling and weighed on the EUR/GBP cross.
On the other hand, the shared currency was weighed down by a strong pickup in the US dollar demand. This was seen as another factor exerting downward pressure on the EUR/GBP cross. However, the risk posed by the upcoming Scottish elections might hold the GBP bulls from placing aggressive bets and help limit any further losses for the EUR/GBP cross. Investors might also prefer to move on the sideline ahead of the latest monetary policy update by the Bank of England on Thursday.
From a technical perspective, the EUR/GBP cross has repeated faced rejection near the 0.8715-20 supply zone. A subsequent break through a one-week-old trading range support near the 0.8675-80 region suggests that the recent strong recovery from over one-year lows has run out of steam. This, in turn, might have already set the stage for a further near-term depreciating move towards the 0.8600 mark.