EUR/GBP stretches recovery above 0.8880 ahead of German Inflation and UK GDP data

• EUR/GBP has scaled above 0.8880 after a recovery move as bets for further ECB policy tightening is accelerating.
• ECB Knot believes that Eurozone headline inflation has peaked now amid falling energy prices.
• The German HICP is expected to increase to a double-digit figure on an annual basis.

The EUR/GBP pair has extended its rebound move from 0.8865 above the critical resistance of 0.8880 in the Asian session. The Euro bulls sensed a buying interest amid escalating hawkish bets for further interest rate decision by the European Central Bank (ECB).

The detailed explanation from ECB policymaker Klaas Knot in an interview with MNI Market cited “Headline inflation has peaked now and the ECB will shift its focus to underlying inflation,” as reported by Reuters. ECB policymakers further stated that the sharp decline in energy prices might continue to weigh pressure on headline inflation. The contraction in economic activities in Eurozone will be shallow and after that, a recovery in activities would provide a cushion to the Consumer Price Index (CPI).

Meanwhile, Isabel Schnabel, a Member of the European Central Bank (ECB)’s Executive Board, wrote in a press release entitled, 'Monetary policy in times of pandemic and war' that inflation momentum remains ‘quite elevated,‘ but cannot give all clear on inflation yet and that the ECB Intends to raise rates by 50bps in March.

On the economic front, investors will actively focus on the release of the German Inflation data. The annual Harmonized Index of Consumer Price (HICP) is seen at 10.0% higher than the former release of 9.6%.

Meanwhile, Pound Sterling bulls are likely to dance to the tunes of the United Kingdom Gross Domestic Product (GDP) (Q4) data. According to the estimates, the preliminary annual GDP data is expected to expand by 0.4% lower than the former release of 1.9%. While the quarterly data is expected to remain flat against a contraction of 0.3%.