EUR/GBP off multi-month lows, finds some support near 0.8500 mark

• EUR/GBP witnessed some intraday selling on Wednesday and dropped to fresh multi-month lows.
• A declining trend in Delta variant infections in the UK continued acting as a tailwind for the sterling.
• A stronger USD capped gains for the British pound and helped limit any further losses for the cross.

The EUR/GBP cross dropped to fresh multi-month lows during the early European session, though managed to rebound few pips from the key 0.8500 psychological mark.

The cross witnessed some selling during the first half of the trading action on Wednesday and dropped to the lowest level since April 6. The British pound's relative outperformance against its European counterpart could be attributed to the declining trend in Delta variant infections in the UK.

In fact, new COVID-19 cases in Britain declined for the seventh consecutive day on Tuesday. Adding to this, UK’s top epidemiologist Neil Ferguson has said that the end of the pandemic in Britain could be just months away. This, in turn, was seen as a key factor that underpinned the sterling.

That said, the emergence of some fresh buying around the US dollar held traders from placing fresh bullish bets around the GBP. This, along with slightly oversold conditions on intraday charts, helped limit any further losses for the EUR/GBP cross and assisted bulls to defend the 0.8500 mark.

Meanwhile, a stronger USD exerted some downward pressure on the shared currency, which should keep a lid on any meaningful recovery for the EUR/GBP cross. Hence, it will be prudent to wait for some strong follow-through buying before confirming that the cross has bottomed out.

There isn't any major market-moving economic data due for release on Wednesday, either from the Eurozone or the UK. Hence, the key focus will remain on the FOMC decision, which might infuse some volatility in the markets and produce some trading opportunities around the EUR/GBP cross.

Technical levels to watch