EUR/GBP tumbles to near 0.8570 as UK inflation supports further policy tightening

• EUR/GBP has slipped sharply to near 0.8570 as the BoE is set to raise interest rates further.
• Headline inflation in the UK is sticky above 8.7% as higher costs of services have faded the impact of lower gasoline prices.
• ECB Lagarde has conveyed that the current monetary policy is not sufficiently restrictive to bring inflation to 2%.

The EUR/GBP pair has faced selling pressure and has dropped to near 0.8570 in the London session. The cross is under pressure as stubborn United Kingdom inflation is supporting more interest rate hikes from the Bank of England (BoE).

Headline inflation in the UK is sticky above 8.7% as higher cost of services and food prices have faded the impact of lower gasoline prices. Core inflation that doesn’t include volatile oil and food prices has refreshed its recent highs at 7.1%. UK’s labor market conditions are extremely tight due to the Brexit event and early retirements by individuals.

This week, the UK Manufacturing PMI landed at 46.5, which remained better than expectations at 46.2. UK’s Manufacturing PMI has been contracting straight for eleven months. A figure below 50.0 is considered a general contraction. Going forward, investors would await Services PMI, which will release on Wednesday. The economic data is seen steady at 53.7.

Meanwhile, a monthly survey by Citi Bank and polling firm YouGov showed that consumer inflation expectations in the UK region for one year have increased to 5.0% in June from 4.7% in May.

On the Eurozone front, investors are awaiting the release of the Retail Sales data (May). Monthly economic data has seen an expansion of 0.2% vs. a stagnant performance reported earlier.

More interest rates from the European Central Bank (ECB) are widely anticipated. ECB President Christine Lagarde has conveyed that the current monetary policy is not sufficiently restrictive to bring inflation to 2%.