EURGBP sees a volatility squeeze despite hawkish ECB bets soar, UK GDP eyed

• EURGBP is expected to display volatility contraction ahead of UK GDP data.
• The German inflation for 2023 is projected at 7% or more.
• BOE’s Pill cited that the UK recession is driven by other factors while the BOE will be held responsible.

The EURGBP pair displayed a rebound move of around 0.8720 in the early Asian session. The asset is expected to remain sideways further as anxiety ahead of the UK Gross Domestic Product (GDP) data could keep investors on the sidelines.

On Tuesday, the cross displayed wild gyrations after hawkish commentary from European Central Bank (ECB) policymaker and Germany’s central bank head Joachim Nagel. Speaking at the Bundesbank Symposium "Dialogue with Banking Supervision," in Frankfurt, ECB policymaker cited that large rate hikes are necessary to bring down inflationary pressures.

He further added that Balance sheet reduction is part of ECB normalization and German 2023 inflation is likely to average at 7% or more.

Apart from that, better-than-projected Retail Sales data also added fuel to Euro’s volatility. The Retail Sales data landed lower at -0.6% against a projection of -1.3% and the prior release of -1.6%. This indicates that the retail demand is recovering, however, the increment could be the outcome of higher inflationary pressures as the economic catalyst is contaminated with the same.

On the UK front, Bank of England (BoE) Chief Economist Huw Pill at the UBS European Conference cited that the central bank will be blamed for the UK recession but it is driven by other factors. The BOE will do whatever is needed to bring the inflation rate to 2%.

Going forward, the UK Gross Domestic Product (GDP) data will be of utmost importance. The UK GDP for the third quarter is expected to drop to 2.1% vs. the prior release of 4.4%.