EUR/GBP bulls take control ahead of critical data events

• EUR/GBP bulls take control as markets get set for the US CPI key event. 
• ECB and BoE sentiment continues to drive the cross. 

EUR/GBP is heading into the last hour of Wall Street on a strong footing ahead of the countdown into US Consumer Price Index which could be a trigger for the US dollar with implications for the euro and the EUR/GBP cross.

Meanwhile, at 0.8442, EUR/GBP is higher by some 0.23% having climbed from a low of 0.8413 and reaching a high of 0.8450 on the day. The euro managed to save face on the back of semi-conflicting central bank chatter. The European Central Bank board member Isabel Schnabel said on Wednesday that the ECB may need to raise interest rates on the back of higher energy prices.

This followed attempts to downplay the hawkishness of the ECB meeting by governor Christine Lagarde at the start of the week. Lagarde argued that any adjustment to monetary policy will be "gradual" and the ECB would remain "data-dependent" while assessing the implications for the medium-term inflation outlook.

Meanwhile deep uncertainty about the future path of the Bank of England’s monetary policy. The Bank of England Chief Economist Huw Pill spoke on Wednesday and said that it was reasonable for central banks to withdraw from providing detailed guidance on the policy outlook as prospects for the economy were not clear cut.

This rhymes with the message from last week's meeting where although the BoE hiked by 0.25bps, the  Governor of The Old Lady, Andrew Bailey, warned markets not to take for granted the BoE was embarking on a long series of rate hikes. nevertheless, money markets are still pricing in a 25 bps rate increase in March and 125 bps by December 2022.

Meanwhile, the US CPI data on Thursday has the potential to move the needle in the forex market. ''If those readings come in hot, it could be the trigger for the next leg higher in U.S. yields and likely push the 10-year above 2% for the first time since August 2019,'' analysts at Brown Brothers Harriman warned. ''Fed tightening expectations would also pick up and likely push the short end of the US curve higher, which would support the dollar.''

On Friday, UK Gross Domestic Product data will be eyed. ''We look for UK GDP to contract 0.8% m/m in December, thus bringing GDP below its pre-COVID level once again,'' analysts at TD Securities explained.

''Manufacturing likely declined 0.3% MoM, while we expect the services sector to contract 0.9% MoM, in part driven by voluntary COVID measures and a substantial amount of people isolating due to the Omicron surge, but also due to a fade in consumer demand.''