EUR/GBP advances towards a 16-month high at 0.8720, focus shifts to UK Inflation

• EUR/GBP is aiming to recapture its 16-month high at 0.8721 as ECB announced a 75 bps rate hike.
• Truss announced a cap on energy bills to safeguard the interest of households.
• UK inflation will accelerate further amid soaring energy prices.

The EUR/GBP pair is aiming to carry forward its two-day winning streak if it manages to cross Thursday’s high at 0.8712. The asset is ultimately focusing to recapture a 16-month high at 0.8720 as a historic rate hike by the European Central Bank (ECB) has infused fresh blood into the shared currency bulls. On a broader note, the cross is continuously moving higher for the past two weeks after a weak hiatus around 0.8600.

ECB President Christine Lagarde preferred the agenda of cooling down the red-hot inflation over growth prospects by announcing a bumper rate hike of 75 basis points (bps). The interest rate has been pushed higher to 1.25% and more escalation is already warned. The central bank will remain more data-centric ahead and won’t continue the pace in hiking critical rates.

The central bank has also come out with inflation projections and is expected to average at 8.1% in 2022, 5.5% in 2023, and 2.3% in 2024. The ECB held soaring energy and food prices and supply chain bottlenecks responsible for accelerating price pressures.

On the UK front, the pound bulls are facing the dual threat of a double-digit inflation rate and bleak long-term growth. Liz Truss, the next UK Prime Minister is attempting to return consumer confidence and has announced a cap on energy bills to safeguard households against the upcoming winter season. The demand for energy accelerates in winter season due to an increase in the usage of electrical appliances and heaters.

The novel cabinet has fixed a cap on energy bills, according to which, a typical household will pay no more than £2,500 a year on energy bills.

Going forward, the UK inflation rate will remain in limelight. Earlier, the headline Consumer Price Index (CPI) landed at 10.1%. The economic data is expected to accelerate further as energy prices have remained upbeat in August.