EUR/GBP marches towards 0.8840 amid hawkish ECB bets and slowing UK labor market

• EUR/GBP is looking to recapture 0.8840 as the ECB is also considering the option of a 50 bps rate hike ahead.
• Eurozone core inflation is extremely persistent due to tight labor market conditions.
• The Pound Sterling is facing pressure as BoE policymakers are confident that inflation will start decelerating quickly.

The EUR/GBP pair is aiming to recapture the critical resistance of 0.8840 in the Toyo session. The cross witnessed a decent correction but has resumed its upside journey as investors are anticipating a severe hawkish monetary policy from the European Central Bank (ECB) ahead.

In Eurozone, headline inflation is not a concern now for ECB policymakers as it has been significantly softening, however, persistent core inflation is strengthening the cause of worry. ECB Governing Council member Bostjan Vasle said that they are considering 25 and 50 basis points (bps) rate hike options for the May policy meeting, per Reuters. He further added, "Headline inflation is coming down but we are all focused on core inflation, which is still moving in the wrong direction.

The reason behind persistent core inflation in Eurozone is the tight labor market conditions, which are fueling households with immense funds for disposal.

Reuters reported on Thursday, ECB policymakers are converging on a 25 basis points (bps) interest rate hike in May. Reuters further added, “Though the debate is not over, with one small group still making case for a 50 bps hike in May by ECB President Christine Lagarde; another small group advocating no change.”

On the United Kingdom front, the Pound Sterling is facing pressure as Bank of England (BoE) policymakers are confident that inflation will start decelerating quickly. BoE Chief Economist Huw Pill said on Thursday that they still expect Consumer Price Index (CPI) inflation to fall in the second quarter due to large rises in energy prices from last year dropping out of the annual comparison.

Meanwhile, the Financial Times reported that the UK job market is easing and lifting hopes of fading inflationary pressures, however, the easing UK labor market conditions are insufficient to support a pause in the rate-hike spell.