EUR/GBP remains on the defensive below 0.8700 mark post-Eurozone PMIs for October

• EUR/GBP recovers a few pips from the daily low, though lacks follow-through.
• Looming recession risks weigh on the euro and act as a headwind for the cross.
• Aggressive ECB rate hike bets offer some support and help limit the downside.

The EUR/GBP cross opens with a modest bearish gap on the first day of a new week, though finds support ahead of mid-0.8600s and recovers a few pips from a multi-day low. The cross, however, remains on the defensive through the early European session and is currently trading with modest intraday losses, below the 0.8700 mark.

The shared currency's relative underperformance comes amid the protracted Russia-Ukraine war, which could lead to a deeper economic downturn in the Eurozone. The fears were further fueled by the rather unimpressive flash Eurozone PMI prints released this Monday. S&P Global reported that business activity in Germany's manufacturing sector continued to contract at a faster pace in early October.

Adding to this, the flash Eurozone Manufacturing PMI slumped to 46.6 in October against estimates for a reading of 47.8, revealing a further contraction in the business activity. Moreover, the Services PMI edged lower to 48.2 from 48.8 as expected and the Composite PMI declined to 47.1 from 48.1. Apart from this, a strong pickup in the US dollar demand is further weighing on the common currency.

That said, rising bets for another jumbo 75 bps rate increase by the European Central Bank act as a tailwind for the euro. Hence, the focus remains glued to this week's ECB monetary policy meeting. In the meantime, diminishing odds for a bigger 100 bps rate hike by the Bank of England (BoE) in November keeps a lid on any meaningful upside for sterling and helps limit losses for the EUR/GBP cross.

Technical levels to watch