EUR/GBP shoots above 0.8570 despite higher chances of further policy-tightening by the BoE
- EUR/GBP has climbed above 0.8570 as ECB Lagarde has confirmed a rate hike in July.
- Higher-than-anticipated UK inflation might propel chances of a 50 bps interest rate hike by the BoE.
- ECB Vujčić noted that the central bank has to consider the risk of doing too much vs. too little.
The EUR/GBP pair has displayed a solid upside move to 0.8570 despite the street is confident that the Bank of England (BoE) will hike interest rates further to keep weighing on the stubborn United Kingdom inflation.
The interest rate decision by BoE Governor Andrew Bailey will be announced after the release of the UK’s May Consumer Price Index (CPI) data, which is scheduled for Wednesday. As per the preliminary report, UK’s monthly headline inflation (May) is expected to show a pace of 0.4%, slower than the pace of 1.2% registered in April. Annualized headline CPI is seen softening to 8.5% vs. the prior release of 8.7% while core inflation that excludes oil and food prices is seen steady at 6.8%.
A mild softening in the UK inflation will not provide the luxury of keeping monetary policy to the BoE. Reuters reported that the BoE looks set to raise interest rates by a quarter point to a 15-year high of 4.75% on June 22. While economists at Commerzbank expect that a surprise upside in inflationary pressures in the Pound Sterling area might intensify chances of a 50 bp interest rate hike from the BoE.
On the Eurozone front, European Central Bank (ECB) President Christine Lagarde has confirmed that a rate hike is widely anticipated in July as core inflation is showing immense persistence. The central bank is ready to threaten economic prospects in the fight against stubborn inflation.
Meanwhile, ECB policymaker Boris Vujčić has cited that regarding future policy actions, Vujčić noted that the central bank has to consider the risk of doing too much vs. too little, adding that a soft landing might not be possible.