EUR/GBP finds resistance around 0.8600 as ECB raises refinancing rates to 4.25% as expected

• EUR/GBP is expected to continue its downside momentum as the ECB raised interest rates by 25 bps to 4.25%.
• An interest rate hike of 25 bps was expected as inflationary pressures in Eurozone are almost thrice the required rate.
• The Pound Sterling is in a bullish trajectory as the BoE is preparing to raise interest rates consecutively for the 14^th time.

The EUR/GBP pair as the European Central Bank (ECB) has hiked interest rates on refinancing operations by 25 basis points (bps) to 4.25% as expected by the market participants. Also, deposit facility rates rose by 25 bps to 3.75%. The interest rate hike announcement from ECB President Christine Lagarde was warranted as core price pressures in the Eurozone are still stubborn.

In June headline inflation was softened to 5.5% as energy prices are consistently declining while core inflation seems stubborn due to rising wages. Investors are worried that headline inflation could rebound as global oil prices have recovered well in the past month and could propel inflationary pressures again.

As an interest rate hike of 25 bps by the ECB was highly anticipated, investors will now turn cautious about September monetary policy meeting. Going forward, investors will focus on preliminary German Gross Domestic Product (GDP) data for the second quarter.  As per the preliminary report, GDP expanded at a nominal pace of 0.1% in the second quarter. In the first quarter, the German GDP contracted by 0.3%. On an annualized basis, consecutive contraction is expected in GDP by 0.3%.

Meanwhile, the Pound Sterling is in a bullish trajectory as the Bank of England (BoE) is preparing to raise interest rates consecutively for the 14^th time. The United Kingdom's economy is facing the burden of BoE’s aggressive monetary policy. Advisers to UK Finance Minister Jeremy Hunt have flagged concerns over deepening recession risks as the BoE has sharply raised interest rates.