EUR/GBP flirts with 0.8800, bears look to seize control ahead of UK CPI on Wednesday

• EUR/GBP continues losing ground for the second successive day on Tuesday.
• Bets for a smaller ECB rate hike contribute to the Euro's underperformance.
• The stronger UK wage growth data boosts the GBP and weighs on the cross.

The EUR/GBP cross extends the previous day's retracement slide from the 0.8865 region, or over a three-week high and remains under some selling pressure for the second successive day on Tuesday. The cross maintains its offered tone through the mid-European session and is currently placed just above the 0.8800 mark, down over 0.20% for the day.

The shared currency's underperformance could be attributed to the fact that the European Central Bank (ECB) policymakers have left the door open to a downshift in the pace of interest rate hikes. In fact, ECB member Martins Kazaks said on Monday that the central bank might opt for a 25 bps hike at the next meeting in May. The British Pound, on the other hand, gets a strong lift following the release of the UK monthly jobs report, which turns out to be another factor exerting some downward pressure on the EUR/GBP cross.

The UK Office for National Statistics (ONS) reported this Tuesday that Average Earnings (including bonuses) rose 5.9% during the three months to February, while labor cost (excluding bonuses) came in at 6.6%, both surpassing consensus estimates. This helps offset a rise in the jobless rate and an unexpected jump in the number of people claiming unemployment-related benefits. Nevertheless, the hot wage growth data should keep pressure on the Bank of England (BoE) to raise interest rates further, which, in turn, underpins the GBP.

The aforementioned fundamental backdrop favours bearish traders and supports prospects for a further near-term depreciating move. Some follow-through selling and acceptance below the 0.8800 mark will be seen as a fresh trigger for bears, reaffirming the negative bias. Traders, however, might prefer to wait on the sidelines ahead of the release of the UK consumer inflation figures, due on Wednesday. The crucial UK CPI will play a key role in influencing the Sterling Pound and determining the short-term direction for the EUR/GBP cross.

Technical levels to watch