EUR/GBP advances towards 0.8900 as focus shifts to ECB Lagarde’s speech/UK data

• EUR/GBP is aiming towards 0.8900 as BOE’s liquidity infusion plan has violated the price stability agenda.
• The BOE has temporarily paused corporate bonds sale and is purchasing index-linked gilts.
• On Wednesday, ECB Lagarde’s speech and UK data will be in focus.

The EUR/GBP pair is juggling around 0.8850 in the Tokyo session after a sheer upside move. Earlier, the asset delivered a north-side break of the week-long consolidation formed in a range of 0.8726-0.8818. The upside break was logged after the Bank of England (BOE) announced a surprise purchase of index-linked gilts up to GBP5 bln. Simultaneously, the BOE announced a temporary pause in corporate bonds sale this week.

The announcement of liquidity infusion by purchasing index-linked gilts triggered the violation of the agenda of bringing price stability. BOE policymakers are putting blood and sweat to curtail the mounting price pressures and the infusion of fresh liquidity has unnerved the market participants.

The pound bulls are also punished due to vulnerable jobless claims data. As per the UK Office of National Statistics, the number of people applying for jobless claims has increased by 25.5k vs. the consensus of a decline of 11.4k. While the Unemployment Rate has slipped to 3.5% against the projections and the prior release of 3.6%. A better-than-projected improvement in Average Earnings data has delighted the households as they will be better position to offset the impact of higher payouts.

Going forward, investors will keep an eye on the UK Industrial and Manufacturing Production data, which are expected to decline from their prior releases.

Meanwhile, the hawkish commentary from European Central Bank (ECB) Chief Economist Philip Lane has also strengthened the shared currency bulls.  ECB policymaker stated that “the evidence suggests that the euro area is not experiencing a broad-based de-anchoring of medium-term inflation expectations”. This may compel the ECB to keep tightening policy further.

On Wednesday, the speech from ECB President Christine Lagarde will remain in focus. ECB’s Lagarde is expected to provide guidance about the likely monetary policy action by the central bank ahead. Apart from that, the consequences of escalated Russia-Ukraine war situation will be keenly watched.