EUR/GBP Surges on ECB Rate Hike Expectations

EUR/GBP Surges on ECB Rate Hike Expectations

In the Tokyo session, the EURGBP pair surges to a fresh day high above the critical resistance level of 0.8830. Investors are anticipating a continuation of the rate hike spell by the European Central Bank (ECB) as Eurozone's inflation remains persistent amid the labor shortage. The ECB has been struggling with supply chain disruptions caused by the Russia-Ukraine war, which have been fueling inflationary pressures for a prolonged period. The expectations of the street is eyeing more upside for the cross, betting on the ECB's rate hike decision.

Eurozone's Persistent Inflation Amid Labor Shortage

Eurozone's inflation remains extremely persistent amid the labor shortage, resulting in higher employment bills from firms. Besides, supply chain disruptions after the Russia-Ukraine war have not cleared, adding to the inflationary pressures. The ECB is expected to face the issue of deciding the pace of rate hikes, as the continuation of bigger rate hikes could trigger recession fears.

ECB Expected to Hike Rates

A survey from economists reported that a majority of investors expect the European Central Bank (ECB) to hike rates by 25 basis points (bps) at its May, June, and July policy meetings before pausing its tightening cycle. "That would take the deposit rate to 3.75%, where it would stay through the rest of the year," Bloomberg reported. ECB President Christine Lagarde is expected to make a crucial decision on the pace of rate hikes, which could trigger recession fears if bigger rate hikes continue.

Higher Earnings Cement Need for BoE Rate Hikes

On the Pound Sterling front, higher Average Earnings data has cemented the need for further rate hikes from the Bank of England (BoE). The three-month Labor cost index (excluding bonuses) landed higher at 6.6% than the consensus of 6.2%, but in line with the prior release. BoE Governor Andrew Bailey is expected to raise rates further to keep inflationary pressures elevated. Higher earnings are expected to keep inflationary pressures high.

UK's CPI Crucial Ahead of May's Monetary Policy Meeting

UK's Consumer Price Index (CPI) data holds significant importance ahead of May's monetary policy meeting. As per the consensus, monthly UK inflation has accelerated by 0.5% against a 1.1% elevation recorded in February. Annual CPI is expected to soften to 9.85 from the former release of 10.4%. Core CPI, which excludes oil and food prices, is expected to decelerate to 6.0% from the former release of 6.2%. March's inflation data will be the last before May's monetary policy meeting.

Forex Traders Eye ECB and BoE Hikes Amid Inflation

The EUR/GBP pair is a major currency pair, representing the value of the Euro against the British Pound Sterling. Forex traders are closely watching the ECB's rate hike decision as it impacts the value of the Euro. The anticipation of a continuation of the rate hike spell by the ECB has caused the EUR/GBP pair to surge to a day's high above 0.8830. The Bank of England's rate hike decision also impacts the value of the Pound Sterling. Hence, forex traders are also keeping an eye on the UK's inflation data, which holds significant importance ahead of May's monetary policy meeting.


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