EURGBP sees fragile hurdles around 0.8740, upside looks likely amid UK recession

• EURGBP is looking to surpass the immediate hurdle of 0.8740 amid a recession in the UK.
• A severe slowdown in the UK economy has left less room for more rate hikes.
• The odds of a hawkish ECB have risen after ECB President cited that inflation is way too high.

The EURGBP pair is displaying signs of exhaustion in the upside momentum after a juggernaut rally to near 0.8740 in the early Asian session. The shared currency bulls had a ball on Thursday after the Bank of England (BOE) announced a rate hike by 75 basis points (bps).

It seems that the ‘Buy the Rumor Sell the News’ indicator was triggered on Thursday after BOE Governor Andrew Bailey announced a historic jump in interest rates. Pound bulls were severely punished after UK interest rates surged by 75 basis points (bps) for the first time since 1989 to 3.0%.

The extent of the rate hike was in line with the estimates. Also, UK Prime Minister Rishi Sunak and Chancellor Jeremy Hunt’s plan of squeezing liquidity from the market by tweaking fiscal policy are supportive of the BOE’s agenda of bringing price stability.

What is hurting the pound bulls is the least room for more hikes as economic prospects are extremely dark. The BOE has confirmed that the UK is already in recession and the situation will remain potentially two years longer than observed during the subprime crisis.

Goldman Sachs’ Chief European Economist Sven Jari Stehn wrote in his latest research note that the UK economic recession is likely to be deeper than previously forecast. “The country is likely to have a four-quarter cumulative fall in the gross domestic product (GDP) of 1.6%.” The investment banking firm has also lowered UK’s growth projections to 1.4% from -1.0% for 2023 on an annual basis.

On the Eurozone front, the hawkish commentary from European Central Bank (ECB) President Christine Lagarde has infused fresh blood into the shared currency bulls. On Thursday, ECB President cited that that inflation is way too high, ''we have to take action,'' She further added that the ECB will do whatever is needed and will use all instruments including balance sheet reduction.