The EUR/GBP cross gained some follow-through traction on Thursday and climbed to over a one-week high, around the 0.8640 region during the early European session. Spot prices, however, lost steam and retreated to the 0.8625 area in reaction to the disappointing release of the Eurozone PMI prints.
The preliminary report from S&P Global/BME research showed that the French economy recorded a notable slowdown in growth at the end of the second quarter. Adding to this, the latest flash PMI data showed a sharp loss of momentum in the German economy in June. This fueled worries over a possible recession, which might derail the European Central Bank's plan to tighten its monetary policy.
Doubts that the ECB will keep hiking interest rates further in the month ahead turned out to be a key factor that undermined the shared currency and capped gains for the EUR/GBP cross. That said, the British pound's relative underperformance, led by expectations that the Bank of England would opt for a more gradual approach towards raising interest rates, acted as a tailwind for spot prices.
Apart from this, the UK-EU impasse over the Northern Ireland Protocol of the Brexit agreement might continue to weigh on sterling and supports prospects for a further near-term appreciation for the EUR/GBP cross. Market participants now look forward to the flash version of the UK PMI prints for a fresh impetus. Nevertheless, the fundamental backdrops favour bulls, suggesting that any meaningful pullback could be seen as a buying opportunity and is more likely to remain limited.
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