EUR/GBP drops swiftly as BoE to tighten policy further despite recession fears

The EUR/GBP pair falls back sharply after facing stiff barricades around 0.8590 in the European session. The asset faces significant offers as the Bank of England (BoE) is expected to continue its rate-hiking spell despite elongated fears of a recession in the United Kingdom.

UK’s authority shows concerns about deepening recession fears due to aggressive interest-rate hikes by the BoE. UK Treasury Advisers to Finance Minister Jeremy Hunt suggest slowing down the pace of hiking interest rates so that the economy could be defended from entering into a recession.

Investors should note that the BoE has already raised its interest rates to 5.0% and is preparing to raise straight for the 14^th time. It is expected that the BoE will announce a 25 basis point (bp) interest rate hike on August 03 and will push interest rates to 5.25%.

The UK economy is under severe pressure as the housing sector has started faltering due to higher borrowing costs. Also, retail orders and factory activities are facing wrath due to higher cost pressures and an uncertain demand outlook.

Meanwhile, the Euro fails to outperform despite the European Central Bank (ECB) raising interest rates by 25 basis points (bps) to 4.25% on Thursday. ECB President Christine Lagarde was expected to deliver a hawkish stance as the job market has remained exceptionally strong in Eurozone.

The ECB is expected to remain data-dependent for its September policy, as commented by ECB Lagarde. On the economic data front, the German economy remained stagnant in the second quarter while investors were anticipating a nominal growth of 0.1% against a contraction of 0.3%, being recorded in the January-March quarter.