EUR/GBP struggles to sustain above 0.8880 as focus shifts to UK economic data

• EUR/GBP is facing pressure in printing fresh highs above 0.8880 ahead of UK economic data.
• A further slowdown in UK economic activities might trim inflation projections.
• ECB Villeroy sees the central bank reaching to terminal rate by the summer.

The EUR/GBP pair is facing barriers in shifting its auction profile above the critical resistance of 0.8880 in the early Tokyo session. The cross is likely to remain on tenterhooks as investors have shifted their focus toward the release of the United Kingdom economic data, which is scheduled for Friday.

The cross is demonstrating signs of exhaustion in the upside trend, however, it would be early to call it a bearish reversal as will require approvals from more filters.

On the economic docket front, UK’s annual Industrial Production and Manufacturing Production (Nov) are expected to contract by 3.0% and 4.8% respectively. Apart from them, monthly Gross Domestic Product (GDP) is expected to contract by 0.3%. Overall weakness in UK production activities is likely to add to the already economic contraction, which will also impact inflation projections. A drop in inflation projections might delight the Bank of England (BOE) ahead.

Meanwhile, economists at MUFG Bank expect that the UK economy will be more stable this year. A note from the bank stated that we may have reached “peak pessimism” for the UK and the Pound. Much greater political stability this year than last is one factor here and we can very likely assume that PM Sunak will bring greater credibility after the turmoil of 2022. “Another consequence of having Rishi Sunak at No. 10 is the prospect of better relations with the EU and with that a possible deal to break the deadlock regarding the Northern Ireland Protocol.”

On the Eurozone front, European Central Bank (ECB)'s governing council member and French central bank governor Francois Villeroy de Galhau said on Wednesday, the central bank should aim to reach the terminal rate by the summer. He further added that the ECB needs to be pragmatic about the pace of rate hikes.