As the Bank of England Prepares For a Further Rate Increase, EUR/GBP Is Expected To Fall Below 0.8700

During the Asian session, the EUR/GBP pair appears vulnerable above the round-level support at 0.8700. As investors anticipate additional interest rate adjustments from the Bank of England (BoE) to curb the United Kingdom's double-digit inflation, the cross is anticipated to demonstrate further weakness.

In the absence of a credible plan for achieving the United Kingdom's inflation objective of 2%, investors have been bullish on the British pound. MUFG Bank economists do not anticipate the Bank of England meeting to impact on the British pound. The British Pound has remained the best-performing G10 currency in 2023, and the second-best in Q2 to date.

Governor Andrew Bailey of the Bank of England has already raised interest rates to 4.25 percent over the course of the previous eleven monetary policy meetings, and a further increase is now widely anticipated. However, it is still difficult to concur that inflationary pressures will close the gap between actual and desired inflation.

Inflationary pressures have been fueled by significant factors, including historically high food inflation, labor shortages caused by retirements, and higher wage offerings.

On the front of the Eurozone, rising interest rates from the European Central Bank (ECB), a decline in credit from Europe's commercial banks, and sluggish industrial output all point to an impending recession. German Industrial Production fell by 3.4% versus expectations of a 1.0% decline and the previous reading of a 2.1% drop. Due to weak automobile demand, global interest rate increases have had a significant effect on German industrial production.

Regarding the interest rate guidance, ECB chief economist Philip Lane stated that there would be "a lot of disinflation" later this year, but that inflation still had "a lot of momentum."