EUR/GBP consolidates below 0.8600 as investors await ECB policy

The EUR/GBP pair is demonstrating directionless performance in the Asian session around 0.8570. The cross is expected to extend its declining spell despite concrete expectations of an interest rate hike from the European Central Bank (ECB), which will be announced on Thursday.

To tame stubborn inflation in Eurozone propelled by rising wages and cost of services, ECB President Christine Lagarde is expected to deliver a hawkish interest rate decision. An interest rate hike of 25 basis points (bps) is expected, which will push interest rates to 4.25%. While the trigger that is building pressure on the Euro is the uncertainty about guidance for September’s monetary policy.

Eurozone inflation is consistently declining and the economy is facing pressure due to higher interest rates. Therefore, the ECB could consider a skip in the policy tightening spell in September but that should not be mixed with a pause for now. However, the guidance from ECB Lagarde would remain hawkish, which will provide some cushion to the Euro.

Meanwhile, the Pound Sterling is performing better against the Euro despite a bleak economic outlook. Higher interest rates by the Bank of England (BoE) are building pressure on the United Kingdom’s economic prospects as firms have postponed tapping credit to avoid bulky interest obligations.

UK’s June inflation remained surprisingly lower for the first time in the past five months. The event provided some relief to BoE policymakers. However, investors are interested to know whether UK PM Rishi Sunak would meet his promise of easing inflation to 5% by the year-end.