EUR/GBP gathers strength to capture 0.8880 as ECB Lagarde reiterates inflation concerns

• EUR/GBP is consolidating in a 20-pip range after Eurozone HICP-inspired volatility.
• ECB Lagarde is reiterating the need for bigger rate hikes to scale down the sticky inflation.
• A Reuters survey shows UK’s forward PPI and inflation expectations have trimmed this month.

The EUR/GBP pair has continued to consolidate in a narrow range of 0.8860-0.8880 from Thursday’s trading session. The cross has turned sideways after displaying some wild moves inspired by the Eurozone Harmonized Index of Consumer Prices (HICP) data.

After a higher-than-anticipated release of the HICP figures by Germany, Spain, and France, preliminary Eurozone HICP (Feb) has followed similar footprints, landed at 8.5%, surpassed the consensus of 8.2% but remained lower than the prior release of 8.6%.

European Central Bank (ECB) President Christine Lagarde is reiterating the need for bigger rate hikes to scale down the sticky inflation. ECB Lagarde cited “The case for a 50 bps rate hike this month is still on the table as inflation is still too high.” She further added, “We have to use all tools at our disposal to bring inflation down and we don’t know the peak for rates yet,” in an interview with Spanish TV.

Analysts at Goldman Sachs have revised their guidance for ECB’s interest rates to the upside. The ECB is to raise its rates by 50 basis points (bps) in May, compared to the 25 bps rate. A rate hike of 50 bps for March monetary policy has already been announced by ECB President Christine Lagarde. The investment banking firm forecasts a peak for the ECB rates at 3.75% by June versus the previous forecast of 3.50%.

For further guidance, Monday’s Eurozone Retail Sales (Feb) data will be keenly watched. The economic data is expected to expand by 1.9% against a contraction of 2.8% released earlier.

On the Pound Sterling, an absence of clear interest rate guidance from the speech delivered by Bank of England (BoE) Governor Andrew Bailey has pushed the Sterling on the back foot.

The latest survey conducted by the BoE decision maker panel (DMP) showed on Thursday that “businesses’ expectations for their own-price inflation declined in February,” as reported by Reuters. The survey shows that the United Kingdom Producer Price Index (PPI) to increase by an average of 5.4% over the next year, down 0.4% from the previous month.

Also, one-year forward CPI inflation expectations trimmed to 5.9%, down from 6.4% in January.