EUR/GBP aims to test weekly highs at 0.8780 as UK Political optimism fades, ECB eyed

• EUR/GBP is approaching weekly highs around 0.8780 as an ECB rate hike may trim BOE/ECB policy divergence.
• A pile of debt is ready to weigh down the confidence of new UK PM Rishi Sunak.
• A second consecutive 75 bps rate hike by the ECB would push interest rates to 2%.

The EUR/GBP pair is concluding its time correction move to near 0.8740 and is aiming to test weekly highs at 0.8781. The cross is picking up bids as clarity over novel UK leadership has trimmed favors for pound bulls. Also, Thursday’s monetary policy announcement by the European Central Bank (ECB), will trim the Bank of England (BOE)-ECB policy divergence ahead.

It is clear that Rishi Sunak will be the next UK Prime Minister after the shortest-ever service-serving UK PM Liz Truss after the former won the leadership contest. Followed by a withdrawal from contestants short-listed for UK PM: Boris Johnson and Penny Mordaunt, Rishi Sunak is ready to hold the UK’s highest chair ahead.

Well, big power is coming with much bigger responsibilities amid the pile-up of debt in the UK economy, the highest since 1960. It would be worth watching how newly appointed Finance Minister Jeremy Hunt and UK’s novel leader Rishi Sunak will fetch the confidence of international investors and bring financial stability.

Apart from financial stability, the deepening energy crisis is also a critical issue for the novel leadership. Headlines from Bloomberg revealed that the EU may join hands with the UK and Switzerland to combat escalating energy prices. The EU is planning a price cap on energy prices to delight households against soaring energy bills. The strategy is to be executed without boosting demand or delivery of electricity to foreign consumers at subsidized prices.

In response to that, the Trading bloc’s executive arm is advising EU members that such a price limit would have to be extended to power-importing countries like the UK or Switzerland for it to be effective, reported Bloomberg.

This week, ECB President Christine Lagarde may tighten its policy further to contain the soaring inflationary pressures. As per analysts from Rabobank, the ECB may announce a second consecutive 75 basis point (bps) interest rate hike, which will push rates to 2%. They see the deposit rate reaching 3% by March next year.