EUR/GBP displays volatility contraction around 0.8600 ahead of Eurozone Inflation

• EUR/GBP is hovering below 0.8600 as investors await Eurozone HICP.
• Eurozone may follow the footprints of Germany and will release its HICP higher at 9%.
• Germany is facing an energy crisis amid temporary supply cuts from Nord Stream 1 pipeline.

The EUR/GBP pair is juggling below 0.8600 as investors have shifted to the sidelines ahead of the eurozone inflation. The cross has turned sideways after delivering a sheer upside from the past week and is expected to continue its lackluster performance.

As per the preliminary estimates, the eurozone Harmonized Index of Consumer Prices (HICP) is seen higher by 10 basis points (bps) at 9%. The Eurozone could be the third western leader, which will enter into the 9% inflation category after the UK and the US. As price pressures in the shared currency region are not displaying signs of exhaustion, the European Central Bank (ECB) will tighten its policy measures and may announce a bumper rate hike.

Hawkish commentary from ECB policymaker Klass Knot underpinned the shared currency bulls. ECB policymaker sees a rate hike announcement by 75 basis points (bps). The price rise index is advancing firmly and the deployment of tightening measures is highly required despite soaring recession fears.

Also, the release of the German inflation on Tuesday has strengthened the odds of a higher inflation rate in eurozone. Meanwhile, the German economy is facing an energy crisis as Nord Stream 1 pipeline under the Baltic Sea is under unscheduled maintenance for the last two days. It is worth noting that Germany is a core member of the European Union and more pain for the German economy could weaken the eurozone bulls.

On the UK front, soaring electricity and energy prices are creating havoc for the Bank of England policymakers. The UK economy is tackling multiple headwinds such as political instability after UK PM Boris Johnson's resignation, the energy supply crisis, and higher projections for the inflation rate.