EUR/GBP climbs firmly above 0.8700 as BoE to consider a pause in policy-tightening spell

The EUR/GBP pair has scaled firmly above the round-level resistance of 0.8700 in the early European session. The cross has witnessed a decent buying interest as investors are anticipating that the Bank of England (BoE) will pause its policy-tightening spell ahead.

Investors should not that BoE Governor Andrew Bailey raised interest rates by 25 basis points (bps) to 4.50% in its May monetary policy to tame the double-digit United kingdom inflation.

Economists at UOB believes that “The MPC no longer expects the UK economy to enter recession this year and now expects GDP to grow by 0.25% in 2023 and by 0.75% in 2024. Inflation is expected to remain above 10%, before falling sharply over the coming months, driven largely by falling energy prices.” They further added, “Whether the MPC will be comfortable with pausing by the time of the next meeting on 22 Jun will depend very much on incoming data and developments. However, we stick to our view that the BOE may pause as soon as next month.”

On Tuesday, UK‘s Employment data also remained below estimates. Three-month Unemployment Rate jumped to 3.9% vs. the estimates and the former release of 3.8%. Claimant Count Change (April) soared to 46.7K while the street was anticipating a decline by 10.8K. Also, Average Earnings excluding bonuses landed at 6.7%, missed estimates of 6.8%. This also adds to factors advocating for a pause in the policy-tightening spell by the BoE.

Meanwhile, the Euro is expected to perform relatively better as the European Central Bank (ECB) is expected to raise interest rates further. ECB President Christine Lagarde already confirmed that more than one interest rate hikes are in pipeline.