EUR/GBP struggles near 0.8800 mark, seems vulnerable amid BoE rate hike bets

• EUR/GBP languishes near a fresh monthly low touched earlier this Wednesday.
• Bets for additional BoE rate hikes underpin the GBP and seem to cap the cross.
• Bears could aim to challenge the 100-day SMA support near the 0.8745 region.

The EUR/GBP cross enters a bearish consolidation phase and oscillates in a narrow trading band near a fresh monthly low touched earlier this Wednesday. The cross is currently placed just below the 0.8800 mark and seems vulnerable to extending its recent retracement slide from its highest level since September 2022 touched earlier this month.

The UK PMIs released on Tuesday indicated that business activity rose more than expected in February and fueled optimism that the country may be able to avoid a steep economic downturn. This, in turn, lifts bets for additional interest rate hikes by the Bank of England (BoE), which continues to underpin the British Pound and acts as a headwind for the EUR/GBP cross.

In contrast, the Eurozone PMI showed that business activity in the manufacturing sector deteriorated this month. Furthermore, the markets already seem to have fully priced in additional jumbo rate hikes by the European Central Bank (ECB) in the coming months. This, along with sustained US Dollar buying, is weighing on the shared currency and favours the EUR/GBP bears.

The aforementioned fundamental backdrop suggests that any attempted recovery might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly. The EUR/GBP cross seems poised to slide further towards testing the 100-day SMA pivotal support, currently around the 0.8745 region. This is closely followed by the YTD low, around the 0.8720 zone, which if broken decisively will mark a fresh breakdown and pave the way for a further depreciating move.

Technical levels to watch