EUR/GBP sees a downside below 0.8730 as BoE-ECB policy divergence sets to widen

• EUR/GBP is expected to deliver a fresh downside below 0.8730 ahead of the BoE policy.
• ECB Lagarde reiterated fears of wage pressures and cited that inflation will still be high for a longer period.
• UK’s annual headline CPI is expected to trim to 9.8% while the core CPI would remain steady.

The EUR/GBP pair is displaying topsy-turvy moves in a narrow range of 0.8730 in the Asian session. The cross is eyeing a downside below the aforementioned support as the street is anticipating more rates from the Bank of England (BoE) despite credible signs of banking turmoil.

Financial instability in global markets after the collapse of three mid-size United States commercial banks and the 164-year-old Credit Suisse has spooked the sentiment of market participants. Two schools of thought have confused investors as one believes that central banks could adopt a steady approach on interest rates as banking shakedown could have its dramatic consequences ahead. While others believe that inflation is extremely stubborn, especially in the United Kingdom region, which is highly required to be tamed as early as possible.

Therefore, the street is anticipating an announcement of a smaller interest rate hike of 25 basis points (bps) by BoE Governor Andrew Bailey to continue to weigh pressure on UK inflation. This would push interest rates to 4.25%.

Before the BoE’s interest rate decision, UK’s inflation data will be keenly watched. As per the estimates, the annual headline CPI is expected to trim to 9.8% from the former release of 10.1%. While the core CPI that excludes oil and food prices would remain steady at 5.8%.

On the Eurozone front, the commentary from European Central Bank (ECB) President Christine Lagarde on inflation projections and wages geared up expectations for the continuation of bumper rate hikes by the ECB. ECB Lagarde cited that inflation is projected to remain too high for too long, as reported by Reuters. She further added that wage pressures have strengthened on the back of robust labor markets and added that employees are aiming to recoup some of the purchasing power.