EUR/GBP looks upside to near 0.8850 ahead of UK-EU discussions on Brexit deal

• EUR/GBP is awaiting the outcome of UK-EU discussions over the Brexit deal for fresh impetus.
• ECB Lagarde confirmed a continuation of the policy tightening spell of 50 bps amid an absence of supportive fiscal policy.
• The German economy has shrunk by 0.4% in the fourth quarter of 2022 as stick inflation has weighed on households’ spending.

The EUR/GBP pair is displaying volatile moves around 0.8830 in the Tokyo session ahead of the potential Brexit deal. The cross is expected to hit the critical resistance of 0.8830 as the European Central Bank (ECB) President Christine Lagarde is reiterating the need of hiking rates further by 50 basis points (bps) to tame persistent inflation.

ECB Lagarde confirmed a continuation of the policy tightening spell of 50 bps for March monetary policy amid an absence of supportive fiscal policy. She added, ''We will do more hikes if necessary to return inflation to our target of 2% in a timely manner,” as reported in the Economic Times.

Little strength in the Euro against the Pound Sterling could be faded as the German economy has contracted in the fourth quarter of CY2022. It seems that inflationary pressures and the energy crises have weighed on German economic prospects. The German economy has shrunk by 0.4% and investors are worried that one more contraction would signal a recession.

Carsten Brzeski, ING's global head of macro, cited “The second consecutive drop in the Ifo's current assessment component, a falling manufacturing PMI, weak consumer confidence and a willingness to spend close to historical lows, all point to a contraction of the German economy once again in the first quarter.”

On the United Kingdom front, investors are keenly awaiting the Brexit deal. The discussions between United Kingdom Prime Minister (PM) Rishi Sunak and European Commission (EC) President Ursula von der Leyen are expected to materialize positively.

British Deputy Prime minister Dominic Raab told BBC “The UK ‘is on the cusp’ of securing a new Brexit deal on Northern Ireland.”