EUR/GBP corrects from 0.8570 despite UK factory activities remain weak

• EUR/GBP has dropped sharply from 0.8570 despite UK’s weak factory data.
• Signs are clear that UK firms are facing the burden of higher interest rates by the BoE.
• ECB Visco conveyed, “We are not very far' from the peak in interest rates.”

The EUR/GBP pair has faced selling pressure after climbing above 0.8570 in the European session. The cross has corrected despite United Kingdom’s factory activity data for May remained weak broadly. Monthly Industrial Production contracted at a higher pace of 0.6% than expectations of -0.4%. On an annualized basis, the economic data matched expectations of 2.3% contractions.

Manufacturing Production reported a light pace in contraction at 0.2% vs. the consensus of -0.5%. Meanwhile, the economic indicator remained between the consensus of -1.7% and the prior release of -0.6% at -1.2%. Monthly Gross Domestic Product (GDP) has posted a contraction of 0.1% while investors were anticipating a contraction of 0.3%.

Signs are clear that UK firms are facing the burden of higher interest rates by the Bank of England (BoE). More interest rates from BoE Governor Andrew Bailey are highly expected as current inflation at 8.7% is extremely far from the desired rate of 2%. Financial markets are expecting that interest rates will peak in a 6.25-6.5% range.

Post UK factory data, Finance Minister Jeremy Hunt said that “while an extra Bank Holiday had an impact on growth in May, high inflation remains a drag anchor on economic growth.”

"The best way to get growth going again and ease the pressure on families is to bring inflation down as quickly as possible. Our plan will work, but we must stick to it,” Hunt added.

Meanwhile, in Eurozone, inflationary pressures are sticky as wage pressures have not softened as expected and the labor market is still strong. About interest rate guidance, European Central Bank (ECB) Governing Council member Ignazio Visco said, “We are not very far' from the peak in interest rates.”

Further policy-tightening by ECB President Christine Lagarde is highly expected in July’s monetary policy meeting.