EUR/GBP aims to recapture weekly highs at 0.8630 as focus shifts to BOE policy

• EUR/GBP is looking to recapture the weekly high at 0.8630 ahead of BOE’s monetary policy.
• Volatility dropped in the UK due to novel leadership could delight the BOE to continue 50 bps rate hike regime.
• UK recession fears have escalated as the economy could display a 1.4% decline in GDP rate.

The EUR/GBP pair has rebounded firmly after a minor correction to near 0.8606 in the Tokyo session. The cross is aiming to recapture the weekly high at 0.8630 ahead of the interest rate decision by the Bank of England (BOE). The asset has remained sideways for the past three trading sessions after a reversal from 0.8580.

The majority of the market participants are expecting that the BOE will push interest rates by 75 basis points (bps) as the inflation rate has recaptured the double-digit figure. However, economists at ING are of the view that the BOE will continue its 50 bps rate hike regime as the volatility infused in the UK’s financial markets due to the disaster of mini-budget supported by former UK Prime minister Liz Truss has been trimmed on Sunak’s appointment as a new leader.

Fiscal policy is now in conjunction with monetary policy as Sunak and Chancellor Jeremy Hunt have favored spending cuts along with tax hikes to curtail the debt crisis. Therefore, BOE policymakers could continue their path of bringing price stability with ease on economic prospects.

Also, soaring recession fears in the UK economy amid sky-rocketing price growth and low confidence of international investors would compel the BOE to go brisk on critical rates.

Economists at Goldman Sachs believe that “The country is likely to have a four-quarter cumulative fall in the gross domestic product (GDP) of 1.6%.” The investment banking firm has also lowered UK’s growth projections to -1.4% from -1.0% for 2023 on an annual basis.

On the Eurozone front, a release of the Harmonized Index of Consumer Prices (HICP) at 10.7% has opened doors for one bigger rate hike by the European Central Bank (ECB). Going forward, the speech from ECB President Christine Lagarde will remain in focus. The ECB policymaker may dictate the likely monetary policy action ahead.