The EUR/GBP currency pair is encountering resistance near the 0.8600 level following the anticipated move by the European Central Bank (ECB) to raise interest rates on refinancing operations by 25 basis points (bps), bringing the rate to 4.25%. The deposit facility rates have also risen by 25 bps to 3.75%.

ECB President Christine Lagarde’s announcement of the interest rate hike was deemed necessary due to persistent core price pressures within the Eurozone.

In June, headline inflation softened to 5.5% due to declining energy prices, while core inflation remained resilient due to increasing wages. Investors are expressing concerns that headline inflation may rebound, especially with the recent recovery in global oil prices, potentially reigniting inflationary pressures.

With the widely expected 25 bps interest rate hike by the ECB, investors are now approaching the September monetary policy meeting with caution. Their attention will be on the preliminary German Gross Domestic Product (GDP) data for the second quarter.

According to the initial report, GDP expanded nominally by 0.1% in the second quarter, following a 0.3% contraction in the first quarter. On an annualized basis, a consecutive GDP contraction of 0.3% is anticipated.

On the other hand, the Pound Sterling is experiencing a bullish trajectory due to the Bank of England (BoE) gearing up for its 14th consecutive interest rate hike. However, the aggressive monetary policy by the BoE is burdening the United Kingdom’s economy.

Advisers to UK Finance Minister Jeremy Hunt have raised concerns about the deepening risks of a recession as the BoE significantly raises interest rates.


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