EUR/GBP finds intermediate support around 0.8750 as investors digest ECB’s smaller rate hike

• EUR/GBP has found a short-term cushion near 0.8750 as the impact of the ECB’s smaller rate hike has started fading.
• Eurozone’s subdued growth rate and reduced loan disbursement forced ECB to go light on interest rates.
• The BOE is expected to raise interest rates consecutively for the 12th time to curb stubborn inflation.

The EUR/GBP pair has gauged intermediate support after a sheer sell-off to near 0.8760 in the early Tokyo session. The cross witnessed a massive decline on Thursday after the European Central Bank (ECB) hiked interest rates by 25 basis points (bps) to 3.25%. ECB President Christine Lagarde made very clear that the policy-tightening spell is not concluded yet and more than one additional rate hikes are in the pipeline.

Investors were split about the pace at which the ECB will hike interest rates amid recent developments in Eurozone banking figures. In a recently published Bank Lending Survey (BLS), the European Central Bank (ECB) noted that a net 38% of Eurozone banks reported a fall in demand for credit from companies in the first quarter of the year. Also, banks have tightened their credit conditions amid a volatile environment. ECB stated, "The general level of interest rates was reported to be the main driver of reduced loan demand, in an environment of monetary policy tightening."

Meanwhile, the Eurozone economy posted a minimal growth rate of 0.1% in the first quarter. Subdued growth rate and reduced loan disbursement confirmed that the ECB is in the right direction so that the pace could be reduced to save the economy from falling into recession.

Analysts at Danske Bank stated, “The ECB is not done hiking and President Lagarde clearly said that its data-dependent approach warranted further hikes at the current outlook. We add a 25bp hike in September as well to our rate call, thereby keeping our 4% peak policy.”

On the Pound Sterling front, the Bank of England (BoE) is preparing for more interest rate hikes as United Kingdom’s inflation is showing reluctance for ditching the double-digit territory. BoE Governor Andrew Bailey is expected to raise interest rates consecutively for the 12^th time to curb stubborn inflation. An interest rate hike by 25 basis points (bps) is widely expected, which will push borrowing costs to 4.5%.