EUR/GBP finds bids near 0.8570 as investors digest high bets on ECB’s rate peak

• EUR/GBP finds buying interest near 0.8570 as the ECB keeps doors open for further policy tightening.
• ECB Lagarde made clear that interest rates will remain higher for long enough to tame inflationary pressures.
• The BoE has already raised interest rates to  5.25% and is expected to raise one more time amid rising upside risks to inflation.

The EUR/GBP pair recovered strongly after discovering firm buying interest near 0.8570 in the late European session. The cross rebounded as investors started digesting the fact that the European Central Bank (ECB) will not raise interest rates further but will keep interest rates higher for a lengthy time till the achievement of price stability.

ECB President Christine Lagarde announced a hawkish interest rate decision on Thursday, pushing interest rates by 25 basis points (bps) to 4.5% to sharpen monetary tools in the battle against persistent inflation. Christine Lagarde kept doors open for further policy tightening but promised to remain data-dependent.  While ECB policymaker Gediminas Simkus said he hoped the ECB was done raising rates. Christine Lagarde made clear that there was no discussion about rate cuts.

Eurozone’s economic growth has remained vulnerable as the economy is struggling to absorb the repercussions of higher interest rates by the ECB. Mounting fears of a stagflation in the Eurozone have dented its economic outlook.

On the Pound Sterling, the United Kingdom economy is also facing the consequences of higher interest rates by the Bank of England (BoE). The UK central bank has already raised interest rates to  5.25% and is expected to raise one more time amid rising upside risks to inflation.

But before that, UK inflation data for August will be keenly watched. Inflationary pressures could remain persistent as the wage growth momentum is strong. The British economy shrank in July as the output from the service sector fell significantly.