EUR/GBP drops to near 0.8600 as Truss is set to become next UK PM, ECB policy buzz

The EUR/GBP pair has slipped to near the critical support of 0.8600 in the early Asian session. The asset is declining at a decent pace after facing barricades around Thursday’s high at 0.8670. The cross has surrendered the crucial support of 0.8610 and has triggered a bearish reversal.

Investors should brace for more downside in the asset as Liz Truss’s win in the Conservative Party leadership election has infused an adrenaline rush into the pound bulls. The sterling was facing the headwinds of soaring energy prices, runaway inflation rate, and political instability after the resignation of ex-UK Prime Minister Boris Johnson. Well, energy prices are still volatile, however, a novel UK leadership in the selection of Liz Truss as the next UK PM has trimmed the political risk.

As energy prices have turned extremely volatile amid Russia’s supply cuts, Britain's largest energy supplier Centrica Plc is in talks to secure billions of pounds in extra credit from banks to meet soaring collateral demands, per Financial Times. Soaring energy prices are a major concern for the UK economy as it is highly responsible for accelerating inflationary pressures.

The Eurozone economy is also a victim of wild gyrates in energy prices. Russia has cut off the energy supply to Germany from the Baltic Sea after citing leakage issues. However, a follow-up statement by Kremlin, citing western sanctions responsible for supply cuts from Nord Stream 1 pipeline has deepened the energy crisis in the trading bloc. Winter is coming and energy demand will accelerate sharply, which will weigh more pressure on energy stockpiles and increase energy rates.

Apart from the energy issues, investors are keeping an eye interest rate decision by the European Central Bank (ECB), due on Thursday. ECB President Christine Lagarde is expected to increase its interest rates by 50 basis points (bps). ECB’s preferred inflation measure, Harmonized Index of Consumer Prices (HICP) has crossed the whooping figure of 9% and it is required to get tamed sooner.