EUR/GBP marches towards 0.8450 as odds of a UK recession escalate
|- EUR/GBP is advancing towards 0.8450 swiftly as a consensus for UK inflation has spurted to 13%.
- Lower earnings and now higher inflation expectations will create more troubles for the BOE.
- The German Factory Orders have squeezed by 0.4% vs. 0.2% recorded earlier.
The EUR/GBP pair has turned sideways around 0.8430 in the Tokyo session after a juggernaut upside move from 0.8360 on Thursday. The cross displayed a sheer upside after the Bank of England (BOE) raised its interest rates by 50 basis points (bps). It was a consecutive 50 bps rate hike by the BOE, which pushed the interest rates to 1.75%.
The investing community is aware of the fact that earnings by UK households have remained vulnerable in the past few months. Apart from that, the inflation rate is sky-rocketing in the economy. Earlier, the inflation rate landed at 9.4%. Now, the statement from BOE Governor Andrew Bailey that the price pressures could reach 13% has created havoc in the sentiment of the market participants.
The runaway inflation is now turning into a galloping one and the BOE has very less room for tightening its policy. Thanks to the subdued economic data and the ongoing political instability after the resignation of UK PM Boris Johnson, which have created a bummer situation for the BOE. In case of the occurrence of an inflation rate near 13%, a situation of recession in the UK economy is highly likely.
On the Eurozone front, German Factory Order data have squeezed by 0.4% vs. the expectation of a squeeze by 0.8% and the prior squeeze of 0.2% on a monthly basis. A lower Factory Orders figures are indicating dismal overall demand in Germany. It is worth noting that Germany is a core member of The European Union (EU) and German economic data carries a significant impact on the shared currency bulls.
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