- EUR/GBP prolonged its recent downward trajectory through the first half of the European session.
- Declining COVID-19 cases in the UK, a shift in the BoE's stance continued underpinning the sterling.
- Stronger USD, disappointing German/Eurozone ZEW survey results weighed on the shared currency.
The EUR/GBP cross continued losing ground through the first half of the European session and dropped to the 0.8460 region, or the lowest level since March 2020 in the last hour.
Following the previous day's two-way/directionless price moves, the EUR/GBP cross met with some fresh supply on Tuesday and prolonged its one-week-old downward trajectory. The British pound's relative outperformance comes amid the declining trend of new COVID-19 cases in the UK and the Bank of England's hints about modest tightening. It is worth recalling that the BoE raised its inflation forecast following the August policy meeting last Thursday and endorsed market expectations for an interest rate hike in 2020.
On the other hand, the shared currency remained on the defensive amid the underlying strong bullish sentiment surrounding the US dollar and was further weighed down by dismal data. In fact, the German ZEW Economic Sentiment Index dropped more than expected to 40.4 in August from 63.3 previous. Adding to this, the Current Conditions sub-index slipped to 29.3. as against 21.9 recorded in July and 30.0 anticipated. Separately, the Eurozone ZEW Economic Sentiment for August fell to 42.7 as compared to 61.2 previous and 72.0 consensus forecast.
Apart from the mentioned fundamental factors, Tuesday's downfall could further be attributed to some technical selling on a sustained break below the key 0.8500 psychological mark. Moreover, the EUR/GBP pair's inability to find any buyers at lower levels suggests that the near-term bearish trajectory might still be far from being over. Hence, a subsequent fall towards testing the next major support, around the 0.8400 mark, remains a distinct possibility.