EUR/GBP refreshes three-day high above 0.8700 ahead of ECB policy

• EUR/GBP rises to near 0.8730 ahead of the monetary policy announcement by the ECB.
• The ECB is expected to keep the refinancing rate unchanged at 4.5% amid a poor outlook.
• Investors doubt that UK PM Rishi Sunak would fulfill his promise of halving headline inflation to 5.4% by the year-end.

The EUR/GBP pair prints a fresh three-day high at 0.8730 in the European session. The cross strengthens ahead of the interest rate decision by the European Central Bank (ECB), which will be announced at 12:15 GMT.

Analysts at ING expect the ECB to keep rates on hold and to basically stick to a hawkish bias, keeping the door open to yet another rate hike in December. Currently, the rate at which the ECB is refinancing operations is 4.5%. The reasoning behind higher neutral ECB bets seems the slowdown fears not easing price pressures.

This week, a survey from S&P Global and Hamburg Commercial Bank (HCOB) showed that the Manufacturing PMI of the private sector dropped to 43.0 in October against September’s reading of 43.4. Investors anticipated a higher reading at 43.7. The Eurozone factory activities have been failing to meet the 50.0 threshold for more than a year. Eurozone Services PMI at 47.8, dropped sharply from the former reading and expectations of 48.7.

Investors see more downside in the Eurozone economy as deepening Middle East tensions could ramp up energy prices, which could fuel price pressures and squeeze the real income of households.

Meanwhile, the Pound Sterling faces selling pressure as investors expect that United Kingdom Prime Minister Rishi Sunak would fail to fulfill his promise of halving headline inflation to 5.4% by the year-end. The labor market conditions in the UK economy have been impacted heavily by the deteriorating demand environment as employers shed jobs for the third time in a row.