EUR/GBP oscillates above 0.8700 after a juggernaut rally backs by BOE’s dovish guidance

• EUR/GBP has shifted its auction profile above 0.8700 after a perpendicular rally.
• The BOE is near to its terminal rate after pushing interest rates to 3.5%.
• Two more consecutive 50 bps interest rate hikes are expected by the ECB.

The EUR/GBP pair is displaying a sideways performance in the Tokyo session after shifting its business above the critical resistance of 0.8700 on Thursday. The cross witnessed immense buying interest by the market participants after the Bank of England (BOE) sounded dovish on policy guidance and the European Central Bank (ECB) announced a hawkish projection for interest rates.

As expected, BOE Governor Andrew Bailey hiked its interest rates by 50 basis points (bps) to 3.25%. The inflation rate in the United Kingdom is in the double-digit figure and the battle against stubborn inflation will remain for a prolonged period, therefore, policy tightening is highly required.

While guiding about upcoming monetary policy action, the BOE cited that the "Majority of Monetary Policy Committee (MPC) judges further increases in bank rate may be required." An absence of surety over further policy tightening has put immense pressure on the Pound Sterling. While casting votes for the interest rate decision, to policymakers favored an unchanged monetary policy as they saw the current interest rate policy as sufficient to combat inflation.

On the Eurozone front, ECB President Christine Lagarde hiked interest rates by 50 bps, in line with expectations. The Eurozone central bank sees inflation sticking well above a 2% target for a longer period led by firmer food price inflation. The ECB has hiked interest rate peak projection as it sees two more 50 bps interest rate hikes consecutively.

For further guidance, the release of the United Kingdom Retail Sales data will be of utmost importance. As per the projections, the annual economic data (Nov) is expected to contract by 5.6% against a contraction of 6.1% released earlier. While the monthly data would drop to 0.3% from the former release of 0.6%.