EUR/GBP struggles for a firm direction, stuck in a range around mid-0.8600s

• EUR/GBP seesaws between tepid gains/minor losses through the Asian session on Tuesday.
• The UK political uncertainty undermines the British pound and offers support to the cross.
• A weaker USD benefits the shared currency and also contributes to limiting the downside.

The EUR/GBP cross struggles to capitalize on the overnight bounce from its lowest level since early September and oscillates in a narrow trading band on Tuesday. The cross is currently placed in neutral territory, around mid-0.8600s, as traders await a fresh catalyst before positioning for the next leg of a directional move.

The downside, however, remains cushioned, at least for now, amid the UK political uncertainty, which continues to act as a headwind for the British pound. In fact, rebels within the ruling Tory Party are coming together to replace the newly-elected UK Prime Minister Liz Truss in the wake of the recent tax cut fiasco. It is worth recalling that the new UK Finance Minister Jeremy Hunt reversed almost all tax measures set out in the mini-budget led to chaos in the financial markets.

The shared currency, on the other hand, draws some support from the prevalent selling bias around the US dollar. This is seen as another factor offering some support to the EUR/GBP cross. That said, soaring bets for a bigger 100 bps rate hike by the Bank of England (BoE) in November offer some support to sterling and keep a lid on any meaningful upside for the cross. This, in turn, warrants some caution for aggressive traders and positioning for a firm intraday direction.

The market focus now shifts to the latest UK consumer inflation figures, due for release on Wednesday. The data will influence BoE rate hike expectations and drive the British pound. Traders will further take cues from the final Eurozone CPI prints, which might further contribute to providing some meaningful impetus to the EUR/GBP cross.

Technical levels to watch