- A combination of factors dragged EUR/GBP to a nearly four-week low on Thursday.
- Recession fears continued weighing on the shared currency and acted as a headwind.
- Reduced political uncertainty lifted sterling and further contributed to the selling bias.
The EUR/GBP cross prolonged its recent pullback from the 0.8680 region and continued losing ground for the fourth successive day on Wednesday. The downward trajectory dragged spot prices to a nearly four-week low, with bears now awaiting sustained weakness below the 0.8500 psychological mark.
The shared currency continued with its relative underperformance amid the ongoing energy crisis in Europe, which could drag the region's economy faster and deeper into recession. The market worries were further fueled by European Commission chief Ursula von der Leyen's warning on Wednesday, saying that the EU needs to make emergency plans to prepare for a complete cut-off of Russian gas.
On the other hand, the British pound drew some support from modest US dollar pullback from a two-decade high and the prospect of reduced political uncertainty. In the latest development, UK Prime Minister Boris Johnson announced his resignation, marking the end of the recent political drama in the country. Johnson's departure, however, was almost a certainty and largely priced in by markets.
Furthermore, investors remain worried that the UK government's controversial Northern Ireland Protocol Bill could trigger a trade war with the European Union. Apart from this, expectations that the Bank of England would adopt a gradual approach towards raising interest rates amid growing recession fears acted as a headwind for sterling. This, in turn, should limit losses for the EUR/GBP cross.
Hence, any subsequent downfall is more likely to find decent support near a technically significant 200-day SMA, currently around the 0.8445 region, which should act as a strong base for the EUR/GBP cross. That said, a convincing break below would be seen as a fresh trigger for bearish traders and set the stage for a further near-term depreciating move.
