EUR/GBP refreshes three-week low as ECB Villeroy see policy sufficiently restrictive

• EUR/GBP prints a fresh three-week low at 0.8620 as the ECB is expected to keep policy steady ahead.
• The Eurozone GDP for Q3 is expected to contract due to the consequences of higher interest rates.
• The Pound Sterling will dance to the tune of the UK factory data.

The EUR/GBP pair printed a fresh three-week low at 0.8620 on Wednesday as European Central Bank (ECB) Governing Council member and Bank of France President, Francois Villeroy de Galhau see monetary policy sufficiently restrictive.

ECB Villeroy warned that further policy tightening is not the right thing at this time amid a positive oil price outlook due to escalating Middle East tensions.

Meanwhile, the Eurozone economy is underperforming on the grounds of employment, output, and consumer spending, which are consequences of higher interest rates by the central bank. ECB policymaker Pablo Hernandez de Cos expects a negative reading of Gross Domestic Product (GDP) in the third quarter of 2023.

ECB policymakers have been emphasizing the need to keep interest rates higher for a longer period as the last leg of inflation could turn out sticky ahead. A survey from the ECB showed that Eurozone consumers see inflation three years ahead at 2.5% in August vs. 2.4% in July.

On the Pound Sterling front, investors await the United Kingdom factory data, which will be released on Thursday at 06:00 GMT. Investors see monthly Manufacturing Production contracting by 0.3% against the 0.8% contraction recorded for July. Monthly Industrial Production is foreseen to decline at a slower pace of 0.2% against a contraction of 0.7% in July. The monthly Gross Domestic Product (GDP) data is seen expanding by 0.5% against a decline of 0.5% in July.

Investors seem confused about the interest rate outlook after hawkish guidance from Bank of England (BoE) policymaker Katherine Mann, which supported for aggressively tightening approach this week. She discussed the need to bring down inflation to 2% and wipe out consumer inflation expectations.