EUR/GBP sticks to modest gains, lacks follow-through beyond 0.8800 post-Eurozone CPI

• EUR/GBP edges higher for the second successive day, albeit lacks follow-through.
• The prospects for more aggressive ECB rate hikes keep a lid on any further gains.
• Traders also seem reluctant ahead of the crucial ECB policy meeting on Thursday.

The EUR/GBP cross attracts some dip-buying near the 0.8765 region and builds on the overnight bounce from a nearly one-month low. The intraday uptick lifts spot prices to a two-day high during the early European session, though bulls struggle to capitalize on the move beyond the 0.8800 round-figure mark.

A modest US Dollar strength turns out to be a key factor behind the shared currency's relative underperformance amid some repositioning trade ahead of the crucial European Central Bank (ECB) meeting on Thursday. Apart from this, speculations that the Bank of England (BoE) will hike interest rates by 25 bps underpin the British Pound and act as a tailwind for the EUR/GBP cross.

The ECB, meanwhile, is also expected to deliver another rate hike on Thursday and could surprise with an outsized 50 bps lift-off. The bets were lifted by the latest Eurozone consumer inflation figures, which showed that the Harmonized Index of Consumer Prices (HICP) edged higher to 7% YoY in April from 6.9% in the previous month. The Core HICP, however, ticked down to 5.6%.

The aforementioned fundamental backdrop makes it prudent to wait for strong follow-through buying before confirming that the EUR/GBP cross has formed a near-term bottom and positioning for any further appreciating move. Traders might also prefer to wait on the sidelines heading into the key central bank event risk - the highly-anticipated ECB monetary policy meeting on Thursday.

Technical levels to watch