EUR/GBP discovers support near 0.8650 on downbeat UK factory data

• EUR/GBP rebounds from 0.8650 on weaker-than-projected UK factory data.
• The outlook of the UK manufacturing sector remains gloomy due to deepening cost of living crisis.
• German HICP is seen significantly higher in December.

The EUR/GBP pair finds cushion near 0.8650 after the United Kingdom S&P Global Manufacturing PMI data for December failed to meet expectations. The S&P Global reported the UK factory data at 46.2, which was lower than the consensus and the former reading of 46.4.

The Manufacturing PMI remains below the 50.0 threshold for the 17th month in a row as higher interest rates and hot price pressures have deepened cost of living crisis.

The S&P Global Market Intelligence reported that tough conditions in the domestic economy and the exports markets notably from the European Union resulted in lower production at UK factories. The agency also reported that business optimism dipped to 12-month low, indicating more cutback in production, new orders and employment ahead.

Meanwhile, fears of a technical recession in the UK economy are already high as the Office for National Statistics (ONS), in its fresh estimates, indicated that the economy shrank by 0.1% in the July-September quarter.  

Lower Manufacturing PMI may join deepening recession fears and will compel Bank of England (BoE) policymakers to start discussing rate cuts earlier.

On the Eurozone front, investors await the German’s preliminary Harmonized Index of Consumer Prices (HICP) for December, which will be published on Thursday. As per the consensus, monthly HICP grew by 0.3% against 0.7% decline in November. The annual HICP significantly rose to 3.9% against the former reading of 2.3%.