EUR/GBP clings to modest daily gains near 0.8600

• EUR/GBP remains on track to post its highest daily close since late July.
• ECB's Lagarde thinks targeted support is needed in struggling sectors.
• Business activity in UK manufacturing sector continued to expand in August.

The EUR/GBP pair closed in the positive territory on Tuesday and touched its highest level since July 22 at 0.8603 on Wednesday before going into a consolidation phase. As of writing, the pair was up 0.13% on the day at 0.8594. 

The broad-based selling pressure surrounding the greenback allowed both the EUR and the GBP to find demand on Wednesday while making it difficult for EUR/GBP to make a decisive move in either direction.

Earlier in the day, the data from the UK revealed that the business activity in the manufacturing sector continued to expand at a robust pace with the Markit Manufacturing PMI arriving at 60.3 in August. Similarly, the Markit Manufacturing PMI for the euro area posted 61.4 in the same period.

Meanwhile, Christine Lagarde, President of the Europen Central Bank (ECB), said that the eurozone is emerging from the pandemic but added that focused and targeted monetary support will be still needed in sectors that were badly hurt. 

EUR/GBP outlook

Rabobank analysts think that EUR/GBP could fall to 0.8400 area on strong UK data toward the end of the year.

"There is scope for some further underperformance of GBP vs the EUR near term, though the 0.8600 area will likely act as firm psychological resistance," analysts said. "Better UK economic data will likely be needed to put EUR/GBP back on course for our 0.84 year-end target.” 

Additional levels to watch for