EUR/GBP extends recovery above 0.8800 ahead of Eurozone Inflation and UK GDP

• EUR/GBP has extended its recovery move above 0.8880 as the focus shifts to Eurozone inflation.
• The ECB would hike rates further if banking jitters have no or weak impact on the financial situation.
• The UK economy is expected to witness a deep recession as inflation is extremely sticky and growth is getting squeezed.

The EUR/GBP pair has stretched its recovery above 0.8800 in the Asian session. The cross has shown a gradual decline in hopes that the European Central Bank (ECB) will continue to hike rates further to tame the sticky inflation. The asset is expected to show a power-pack action ahead of the release of the preliminary Eurozone Harmonized Index of Consumer Prices (HICP) and the Gross Domestic Product (GDP) (Q4) figures on Friday.

Preliminary Eurozone HICP is expected to decelerate significantly to 7.3% from the former release of 8.5%. While core HICP is expected to escalate to 5.7% vs. the prior release of 5.6%. Weak oil prices are expected to weigh heavily on Eurozone inflation. The European Central Bank (ECB) is expected to continue tightening the monetary policy further as ECB President Christine Lagarde reiterated that Inflation will stay higher for a longer period.

Meanwhile, banking tensions are settling down as no news about further collateral damage is itself good news for the market. Chief Economist Philip Lane said on Wednesday, “ECB rates must rise if banking tension has no or ‘fairly limited’ impact.”

On the United Kingdom front, investors are keenly awaiting Gross Domestic Product (GDP) data. As per the consensus, UK’s growth has remained stagnant in the fourth quarter of CY2022. Annual GDP is expected to remain steady at 0.4%. The UK economy is expected to witness a deep recession as inflation is extremely sticky and growth is getting squeezed.

Bank of England (BoE) policymakers look confident about softening of inflation ahead and the surprise rise in February’s inflation was a one-time blip, however, an absence of evidence is still raising doubts. BoE Governor Andrew Bailey cited that more rates would be announced if inflation remains persistent further. On the contrary, analysts at Bank of America (BoA) are of the view that the BoE won’t hike rates further and will keep rates steady until 2024.