The EUR/GBP currency pair experienced a steep decline after encountering strong resistance around the 0.8590 level during the European session. This drop is due to significant selling pressure, with the Bank of England (BoE) poised to continue its series of interest rate hikes despite lingering concerns about a recession in the United Kingdom.
UK authorities are expressing worries about the deepening recession fears arising from the BoE’s aggressive interest rate hikes. Treasury advisers to Finance Minister Jeremy Hunt are recommending a slowdown in the pace of rate increases to protect the economy from entering a recession.
Investors should take note that the BoE has already raised interest rates to 5.0% and is gearing up for its 14th consecutive hike. It is expected that the BoE will announce a 25 basis point interest rate increase on August 03, pushing rates to 5.25%.
The UK economy is facing considerable pressure, with the housing sector showing signs of faltering due to higher borrowing costs. Additionally, retail orders and factory activities are being negatively impacted by elevated cost pressures and an uncertain demand outlook.
Meanwhile, despite the European Central Bank (ECB) raising interest rates by 25 basis points to 4.25% on Thursday, the Euro is failing to outperform. ECB President Christine Lagarde was anticipated to take a hawkish stance, given the exceptionally strong job market in the Eurozone.
The ECB is expected to remain data-dependent for its September policy, as stated by President Lagarde. On the economic data front, the German economy experienced stagnation in the second quarter, contrary to investors’ expectations of a nominal growth of 0.1% following a contraction of 0.3% in the January-March quarter.
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