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EUR/GBP has extended its recovery move above 0.8880 as the focus shifts to Eurozone inflation.
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The ECB would hike rates further if banking jitters have no or weak impact on the financial situation.
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The UK economy is expected to witness a deep recession as inflation is extremely sticky and growth is getting squeezed.
The EUR/GBP pair extended its recovery above 0.8800 in the Asian session. The cross showed a gradual decline on hopes that the European Central Bank (ECB) will continue to raise rates further to control sticky inflation. The asset is expected to show power-packed action ahead of the release of preliminary Eurozone Harmonized Index of Consumer Prices (HICP) and Gross Domestic Product (GDP) (Q4) figures on Friday.
The preliminary Eurozone HICP is expected to decline significantly to 7.3% from the previous release of 8.5%. While the core HICP is expected to rise to 5.7% against the earlier release of 5.6%. Weak oil prices are expected to weigh heavily on eurozone inflation. The European Central Bank (ECB) is expected to continue to tighten monetary policy as ECB President Christine Lagarde reiterated that inflation will remain high for a long time.
Meanwhile, banking tensions are settling as any news of further collateral damage is not good news for markets “ECB rates will surely rise if there is no or ‘fairly limited’ impact on banking tensions,” chief economist Philip Lane said on Wednesday.
On the UK front, investors are eagerly awaiting Gross Domestic Product (GDP) data. According to consensus, UK growth was stagnant in the fourth quarter of CY2022. Annual GDP is expected to remain stable at 0.4%. The UK economy is expected to witness a deep recession as inflation remains extremely sticky and growth remains subdued.
Bank of England (BoE) policymakers are confident of easing inflation ahead and the surprise rise in inflation in February was a one-time blip, but the absence of evidence still raises doubts. BoE Governor Andrew Bailey indicated that further rate hikes would be announced if inflation continued to rise. In contrast, analysts at Bank of America (BoA) think the BoE will not raise rates again and keep rates steady until 2024.
EUR/GBP
