In Advance Of ECB Monetary Policy, EUR/GBP Fluctuates Above 0.8000

During the Asian session, the EUR/GBP pair is consolidating above the round-level support of 0.8800. The cross experienced a sharp decline on Wednesday after abandoning key support at 0.8815, as investors are divided over the tempo of upcoming European Central Bank (ECB) interest rate hikes.

Earlier, the market was optimistic that ECB President Christine Lagarde would continue its 50-bps policy tightening regime.  Isabel Schnabel, a member of the ECB, stated last week that a further 50 basis point increase in interest rates is likely. Due to a labor shortage, Eurozone inflation is extremely persistent and shows no encouraging signals of further deceleration.

However, weak growth rates and declining bank credit have increased fears of a Eurozone recession, and the ECB is anticipated to slow the rate of interest rate increases to 25 basis points (bps). The Eurozone economy posted a Gross Domestic Product (GDP) growth of 0.1% in the first quarter, which was less than the 0.2% that was anticipated.

The European Central Bank (ECB) noted in a recently published Bank Lending Survey (BLS) that a net 38% of Eurozone banks reported a decline in credit demand from companies in the first quarter of the year. In addition, banks have tightened credit conditions in response to the volatile environment. In an environment of tightening monetary policy, the ECB reported that the general level of interest rates was the primary driver of declining loan demand.

On the British Pound front, The majority of economists surveyed by Bloomberg anticipate that the federal funds rate will increase to 4.5% on May 11 and then remain unchanged, halting the most aggressive cycle of rate hikes in four decades.