EUR/GBP turns vulnerable as Eurozone Sentix Investor Confidence edges down

• EUR/GBP declined toward 0.8600 as the ECB’s higher interest rates dented the economic outlook.
• ECB Lagarde vowed to keep interest rates higher to bring inflation to 2% in a timely manner.
• BoE Bailey is confident about bringing down inflation to 5% or lower by the year-end.

The EUR/GBP pair remains under pressure from the last week after the Eurozone’s consumer spending data slowed at a higher pace in August as high inflation squeezes the real income of households. The cross is expected to extend its downside as the confidence of investors in the Eurozone economy is declining due to an uncertain economic outlook.

Investors are worried about economic prospects as higher interest rates by the European Central Bank (ECB) have deteriorated demand, which has resulted in contracting factory activities. The Eurozone Sentix Investors Confidence for October has edged down to 21.9 from the former release of 21.5.

This weekend, ECB President Christine Lagarde remained confident about achieving the 2% inflation target. The statement from ECB Lagarde indicated that interest rates from the central bank are peaked for now and are required to remain higher long enough to bring down inflation to 2% in a timely manner.

Meanwhile, investors underpin the Pound Sterling against the shared currency as the Bank of England (BoE) Governor Andrew Bailey is confident about bringing down inflation to 5% or lower by the year-end. This indicates that UK Prime Minister Rishi Sunak would meet his promise of halving inflation to 5.2% until 2023 ends.

Going forward, UK’s factory activity and Gross Domestic Product (GDP) data will be keenly watched. Monthly Manufacturing and Industrial Production data are expected to contract consecutively as higher interest rates have dented demand in domestic and overseas markets.