EUR/GBP steadies below 0.8700 following a reversal from 0.8750

• Euro's reversal from the 0.8900 area finds support at 0.8750.
• The pound appreciates as Sunak cams the market.
• EUR/GBP likely to reach 0.90 in the coming months – SocGen.

The euro has given away gains on Tuesday against a stronger British pound, buoyed by the market’s enthusiasm as Rishi Sunak became Prime Minister.

The pair has reversed Monday’s gains pulling back from levels neat 0.8760 to session lows at 0.8665 area where it seems to have found support to consolidate below 0.8700.

The pound rallies as Sunak calms the markets

UK’s new Prime Minister Rishi Sunak's first speech, pledging to restore economic stability has brought back confidence to the markets. Furthermore, the re-appointment of Jeremy Hunt as chancellor of the exchequer has increased hopes of a market-friendly cabinet, which has buoyed the pound across the board.

On the macroeconomic docket, the German IFO Business Climate Index showed that sentiment remains practically unchanged from the previous month. These figures have passed virtually unnoticed, as the focus is set on the outcome of the ECB’s monetary policy meeting, due next Thursday.

EUR/GBP expected to crawl towards 0.90 – SocGen

In a bigger picture, Kit Juckes, Chief Global FX Strategist at Société Générale, sees the pair advancing toward 0.90: “With the economy surely already in recession and set to suffer from possibly even tighter fiscal policy, sterling is unlikely to enjoy much more of a relief bounce and over time, EUR/GBP is likely to meander slowly up to 0.90 or so.”

Technical levels to watch