EUR/GBP drops to multi-day low, eyes 0.8600 mark on weaker Euro Zone PMIs

• EUR/GBP meets with heavy supply in reaction to the dismal Euro Zone PMI prints for July.
• The weaker data eases pressure on the ECB to hike rates further and weighs on the Euro.
• Diminishing odds for a more aggressive BoE cap gains for the GBP and could limit losses.

The EUR/GBP cross comes under heavy selling pressure during the early European session on Monday and drops to a three-day low, around the 0.8620 region in reaction to the dismal Euro Zone data.

The shared currency takes a hit following the rather disappointing release of Eurozone PMI prints, which, in turn, is seen as a key factor behind the latest leg of a sudden drop for the EUR/GBP cross. In fact, S&P Global's preliminary report pointed to a sharp slowdown in business activity in France and Germany - the Eurozone's two largest economies. Moreover, the composite Euro Zone PMI missed consensus estimates and eases pressure on the European Central Bank (ECB) to hike interest rates after the anticipated 25 bps lift-off later this week.

The EUR/GBP cross, however, manages to hold above the 0.8600 mark, at least for the time being, in the wake of diminishing odds for a more aggressive policy tightening by the Bank of England (BoE), bolstered by last week's softer UK consumer inflation figures. Hence, it will be prudent to wait for strong follow-through selling before confirming that the EUR/GBP pair's recent goodish recovery from the vicinity of the 0.8500 psychological mark, or its lowest level since August 2022 touched earlier this month, has run its course.

Traders might also refrain from placing aggressive bets and wait on the sidelines ahead of the crucial ECB policy meeting on Thursday. In the meantime, the release of the flash version of the UK PMI prints for July might influence the British Pound and provide some impetus to the EUR/GBP cross. Nevertheless, spot prices have now retreated nearly 100 pips from a nearly one-month high touched last week and a convincing break below the 0.8600 round figure should pave the way for a further intraday depreciating move.

Technical levels to watch