EUR/GBP displays a less-confident pullback around 0.8670, UK Employment in focus

• EUR/GBP is expected to resume its downside journey after surrendering the 0.8650 support.
• An upbeat UK employment data will strengthen the pound bulls further.
• Soaring energy bills are impacting Eurozone corporate margins.

The EUR/GBP pair has displayed a short-lived pullback move after hitting a four-day low around 0.8650 on Monday. The cross is expected to resume its downside journey after concluding the pullback move and will accelerate the downside momentum after surrendering the crucial support of 0.8650. The asset is likely to dance to the tunes of UK employment data ahead.

As per the estimates, the UK Unemployment Rate will remain unchanged at 3.8%. While the number of individuals claiming jobless benefits will decline by 9.2k. The catalyst which is worth considering by the households due to higher payouts in an inflationary environment is the Average Earnings data. The labor cost index will improve significantly to 5% vs. 4.7%, which will support the households to offset the higher payouts led by soaring inflation.

Apart from that, Wednesday’s UK inflation data also holds significant importance. The UK Consumer Price Index (CPI) is expected to remain above the double-digit figure at 10.2%. This will force the Bank of England (BOE) to scale up interest rates further. This may escalate the BOE-European Central Bank (ECB) policy divergence further.

Meanwhile, the shared currency bulls are facing the heat of soaring energy bills. The upcoming winter season in Europe demands more amount of energy to operate heaters and other heat-producing appliances. Therefore, the demand for energy will accelerate further. After an unexpected 75 basis points (bps) interest rate hike by the ECB last week, the central bank will announce more rate hikes as price pressures are still beyond the desired rate.

The corporate sector in the eurozone is going through a phase of declining margins led by higher energy prices. Input costs for major companies have sky-rocketed amid higher energy bills, which are hitting their operating margins and henceforth leading a few firms to bankruptcy. A load of higher interest rates and soaring energy bills are impacting their earnings performance.