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  • EUR/GBP edge lower on Tuesday and remained within the striking distance of over one-year lows.
  • Concerns about the third wave of COVID-19 infections continued underpinning the shared currency.
  • Sustained USD buying weighed on the British pound and might help limit further losses for the cross.

The EUR/GBP cross traded with a negative bias through the first half of the European session and was last seen hovering around the 0.8530 region.

The cross failed to capitalize on the previous day’s goodish rebound from the vicinity of the key 0.8500 psychological mark, or over one-year tops, instead met with some fresh supply on Tuesday. The shared currency’s relative underperformance could be attributed to concerns about the economic fallout from the third wave of COVID-19 infections. Investors seem worried that pandemic-related restrictions could derail the fragile Eurozone economic recovery amid the slow pace of vaccinations.

On the other hand, a highly-successful vaccination distribution program and the gradual easing of lockdown restrictions in England extended some support to the British pound. The developments have been fueling speculations that the UK will be one of the first major economies to recover from the coronavirus pandemic. That said, sustained US dollar buying weighed on the sterling and might turn out to be the only factor that might help limit any further losses for the EUR/GBP cross.

Even from a technical perspective, slightly overstretched conditions warrant some consolidation or a modest short-covering bounce, which might further hold bearish traders from placing fresh bets. Market participants now look forward to the release of flash German consumer inflation figures. A stronger reading might be enough to provide a modest lift and allow the EUR/GBP cross to aim back towards reclaiming the 0.8600 round-figure mark, though any meaningful recovery still seems elusive.

Technical levels to watch