EUR/GBP climbs confidently above 0.8800 as UK inflation cements more rate hikes from BoE

• EUR/GBP has crossed 0.8800 after a gradual recovery, however, the downside bias has not faded yet.
• The double-digit UK inflation has cemented the need for one more rate hike from the BoE.
• The street is anticipating that ECB Lagarde will slow down the pace of the rate hike to 25 bps.

The EUR/GBP pair has scaled above the round-level resistance of 0.8800 firmly in the Asian session. The cross has crawled above the aforementioned resistance after a recovery move from 0.8790. The Pound Sterling went sharply higher on Wednesday after the release of the United Kingdom inflation report for March month.

UK’s Office for National Statistics reported the annual headline Consumer Price Index (CPI) at 10.1%, higher than the consensus of 9.8% but lower than the former release of 10.4%. It seems that UK’s headline inflation is still not ready to ditch the double-digit figure territory. On a monthly basis, inflationary pressures accelerated by 0.8%, higher than the consensus of 0.5% but lower than the former pace of 1.1%.

Scrutiny of the UK inflation report showed that headline inflation has softened from its former release due to lower natural gas prices used for electricity and heating purpose.  Food inflation has reached a fresh 45-year high at 19.1% and has been a major driver in keeping UK inflation steady.

Meanwhile, UK’s Producer Price Index (PPI) for input and output products has softened sharply despite steady employment bills. It indicates that firms have passed on the impact of lower input costs due to declining gasoline prices or are worried about forward demand by households.

This has cemented the case of one more 25 basis points (bps) rate hike from the Bank of England (BoE) as a higher restrictive monetary policy is required to tame gigantic inflation.

On the Eurozone front, March’s headline Harmonized Index of Consumer Prices (HICP) has been settled at 6.9%. Eurozone inflation is softening consistently but it doesn’t weak the case of one more rate hike from the European Central Bank (ECB). The street is anticipating that ECB President Christine Lagarde will slow down the pace of the rate hike to 25 basis points (bps).