EUR/GBP breaches 0.86 prior to BOE/ECB policy announcements; UK Inflation in focus
The EUR/GBP exchange rate has surpassed the 0.86 threshold as dismal UK Employment data dampens demand for the Pound Sterling. Inflationary pressures are anticipated to intensify in tandem with rising household incomes in the United Kingdom. ECB Lagarde is anticipated to increase interest rates by 50 basis points to 2.5%.

In the early Tokyo session, the EUR/GBP pair is lingering around the crucial resistance level of 0.8600. The cross rebounded strongly on Tuesday following a test of the previous week's low around 0.8560 on dismal UK Employment data.
Claimant Count Change in November unexpectedly increased by 30,500 whereas market participants had anticipated a drop of 13,500. Aside from that, Average Earnings increased by 6.1%, which reinforced inflation estimates because rising household incomes will lead to robust retail demand. Certainly, greater incomes will assist households in countering higher payments owing to inflation-adjusted prices, but they will also leave them with more disposable income, so boosting retail demand.
In the future, the Consumer Price Index (CPI) statistics for the United Kingdom is crucial. According to the consensus, yearly headline inflation will fall to 10.9% from 11.1% previously. The core CPI is expected to remain unchanged at 6.5%.
This week, the Bank of England's interest rate decision will be the most influential factor in the British economy (BOE). The Governor of the Bank of England, Andrew Bailey, is likely to increase interest rates further in an effort to reduce inflation. Analysts at Danske Bank anticipate an announcement of a 50 basis point (bps) rate increase.
In its most recent Financial Stability report, the BOE predicted that financial constraints on UK enterprises, particularly smaller firms, will increase in 2023. In addition, widespread indicators of financial distress among British households have yet to appear.
On the Eurozone front, investors are focusing on the European Central Bank's monetary policy decision (ECB). Christine Lagarde, president of the European Central Bank, is expected to increase interest rates by 50 basis points (bps) to 2.5%. The ECB is approaching its estimated terminal rate of 3 percent.
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