EUR/GBP remains on the defensive and remains above two-and-a-half-week lows

• The EUR/GBP pair fell for the third consecutive day, although it did not have continuity in the sales.
• The new increase in the price of gas fueled fears of a recession and continued to weigh on the euro.
• Political jitters in the UK acted as a headwind for sterling and should limit the slide.

The crossing EUR/GBP struggled to ride on a modest bounce the day before from a two-week low and attracted fresh selling near 0.8600 on Wednesday. The cross maintained its subdued tone and was last seen around the 0.8565-0.8570 region during the early European session.

The shared currency’s relatively poor performance comes amid the risk of gas shortages that could disrupt industrial activity across the region if Russia cuts off supply. In addition, concerns that a large increase in natural gas prices could drag the euro zone economy into a faster and deeper recession forced investors to cut bets on the ECB’s tightening. This, in turn, was seen as a key factor dragging the EUR/GBP cross lower for the third day in a row.

However, political jitters in the UK prevented traders from placing bullish bets on sterling and helped limit deeper EUR/GBP losses, at least for now. In the latest developments, one of the Vice Presidents of the UK’s ruling Conservative Party, Bim Afolami, along with Chancellor Sunak and Health Minister Javid, announced his resignation. However, British Prime Minister Boris Johnson is not planning to resign.

Aside from this, expectations that the Bank of England will take a gradual approach to raising interest rates amid growing recession fears could continue to act as a sterling headwind. This, in turn, favors the prospects for some buying lower around the EUR/GBP cross, warranting some caution on the part of aggressive bear traders. Therefore, it will be prudent to wait for a strong sell-off before positioning yourself for a further downside move.

Technical levels