EUR/GBP recovers from Friday’s losses hover around 0.8450

• The single currency trims two consecutive days’ losses, despite BoE’s prospects of a hike rate.
• ECB Christine Lagarde reinforces that “inflation is largely transitory.”
• ECB and BoE divergence could benefit the British pound versus the single currency.
• EUR/GBP: To extend its slump towards the 0.8385 mark – SocGen.

The EUR/GBP recovers from two days in a row loss, climb 0.27%, trading at 0.8457 during the New York session at the time of writing. Despite rising inflationary pressures, downbeat macroeconomic data from China, and tightening central banks’ monetary policy, the market sentiment is upbeat. The most significant US stock indexes record gains between 0.16% and 0.76%, except for the Dow Jones Industrial, down 0.15%.

European Central Bank and Bank of England divergence boosts the GBP versus the EUR

On Saturday, October 16, the President of the ECB, Christine Lagarde, said that “inflation is largely transitory” after delivering the 2021 Per Jacobsson Lecture at the IMF. Lagarde added that the ECB pays “very close attention” to wage negotiations and other effects that could permanently drive prices.

Meanwhile, over the weekend, the Bank of England Governor Andrew Bailey reiterated that the Bank of England “Will have to act” to curb inflationary pressures.

The UK economic docket featured the Rightmove House Price Index for October, which expanded 1.8% and 6.5% monthly and annual, respectively, higher than the previous reading.

That said, the central bank policy divergence seems to favor the British pound. Portrayed by the move from the October 10 high at 0.8517 towards the October 15 low at 0.8422, it suggests that downward pressures are mounting on the pair, on the expectations of a Bank of England interest rate hike, that could boost the GBP against the shared currency.

EUR/GBP: To extend its slump towards the 0.8385 mark – SocGen

According to analysts at Société Générale, a close below 0.8450 on Friday suggests that downward momentum persists at the EUR/GBP pair: “Holding below 0.8550, EUR/GBP could head lower towards projections of 0.8385.”

“Lower band of the consolidation zone since 2016 at 0.8300/0.8270 and 0.8200 are next significant support levels.”