EUR/GBP extends its losses to four-straight days, below 0.8680

• EUR/GBP is registering weekly losses of more than 1% due to UK’s Chancellor Kwarteng U-Turn in the tax cut program.
• EU and UK’s S&P Global PMIs, paint a gloomy outlook for both economies.
• EUR/GBP is headed to the downside, as the pair extended its losses below last week’s low.

The EUR/GBP extends its losses for the fourth consecutive day, down by more than 1%, as UK’s new government, led by PM Liz Truss, backpedaled a 45% tax cut, improving investors’ sentiment around the globe. Therefore, the EUR/GBP is falling from around daily highs at 0.8830, below the 0.8700 threshold as the North American session progresses. At the time of writing, the EUR/GBP is trading at 0.8675.

Traders’ sentiment improved on Monday. Even though the EU’s energy crisis continues and geopolitical tensions between Russia/Ukraine escalate, was no reason to impede the British pound from appreciating vs. the single currency.

Data-wise, S&P Global PMIs revealed in the Euro area fell to a 27-month low of 48.4 in the previous month, from August’s 49.6, further reinforcing the thesis that the single-currency economy headed into a recession.

Chris Williamson, the chief business economist at S&P Global, said, “The ugly combination of a manufacturing sector in recession and rising inflationary pressures will add further to concerns about the outlook for the eurozone economy.” In a Reuters poll in September, analysts see a 60% chance of a recession in the bloc.

Meanwhile, the UK’s figure for manufacturing activity increased from 47.3 in August to 48.4 in September yet remained in contractionary territory.

Aside from this, UK turmoil abated some following the release of PM Liz Truss’s budget presented on September 23, which announced more than GBP 45 billion in tax cuts, which sent 30-year Gilts bond yield above 5%, spurring a crisis in the UK. Pension funds, unable to meet margin calls, were forced to sell assets to meet additional funding needs, while the Bank of England (BoE) intervened to stabilise the markets.

EUR/GBP Technical Analysis

During the day, the EUR/GBP tumbled below the 20-day EMA, which at 0.8756 opposed less to no resistance, as demand for GBP augmented as the UK’s Finance Minister, Kwasi Kwarteng, reversed the 45% tax cut. It should be noted that the RSI punched below the 50-midline, showing that sellers are gathering momentum. Intraday-wise, the EUR/GBP one-hour chart delineates the cross below the S2 daily pivot at 0.8695 and trading well below the EMAs. Therefore, a break below the September 22 cycle low at 0.8691 could open the door toward 0.8600.