EUR/GBP pares intraday recovery gains, hangs near YTD low around 0.8725-30 area

• EUR/GBP struggles to capitalize on its modest intraday recovery from a fresh YTD low.
• The disappointing Eurozone data acts as a headwind for the Euro and caps the cross.
• Hawkish BoE expectations continue to underpin the GBP and warrant caution for bulls.

The EUR/GBP cross stages an intraday recovery from a fresh YTD low touched earlier this Monday, albeit struggles to capitalize on the move and attracts fresh sellers ahead of the mid-0.8700s. The cross retreats a few pips from the daily peak and is currently placed around a technically significant 200-day Simple Moving Average (SMA), around the 0.8725 region.

The shared currency's relative outperformance comes on the back of the overnight hawkish remarks by the European Central Bank's (ECB) governing council member and turns out to be a key factor acting as a tailwind for the EUR/GBP cross. In fact, Dutch Central Bank President Klaas Knot said on Sunday that the ECB interest rate hikes are starting to have an effect, but more will be needed to contain inflation. Knot added that he still could support the lifting of rates to 5% from the current 3.25%, or even higher if inflation proves more persistent than he expects.

The intraday uptick, however, runs out of steam following the disappointing release of the Eurozone Sentix Investor Confidence index, which deteriorates more than expected to -13.1 in May from -8.7 booked the previous month. Moreover, the Current Situation Index fell to -9.0 from -2.3 in April, while the Expectations Index dropped to -19.0 in May, or its lowest level since December 2022. The data revived recession worries and caps the upside for the Euro. Apart from this, the underlying bullish sentiment surrounding the British Pound caps gains for the EUR/GBP cross.

Firming expectations that the Bank of England (BoE) will raise interest rates by 25 bps later this week on Thursday, along with a modest US Dollar (USD) weakness, continue to boost demand for the Sterling Pound. This, in turn, 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 meaningful recovery ahead of the key central bank event risk. Nevertheless, spot prices, for now, seem to have snapped a three-day losing streak, though the setup warrants caution for bulls.

Technical levels to watch