EUR/GBP grinds higher past 0.8600 on mixed German data, BOE’s Bailey, ECB eyed

EUR/GBP stays defensive above 0.8600 during early Wednesday morning in Europe. In doing so, the cross-currency pair justifies mixed German data amid hawkish expectations from the European Central Bank (ECB).

That said, Germany’s Industrial Production improved to -0.3% MoM in July versus -0.5% expected and 0.8% prior. Further, the YoY details signaled that the Industrial Production growth deteriorates to -1.1% versus 0.5% previous reading.

Elsewhere, the latest Reuters poll for the ECB suggests a 0.75% rate hike versus the broad market consensus, as well as the policymakers’ previous signals that favored 50 basis points (bps) of increase in the benchmark rates during Thursday’s monetary policy meeting.

“Eurozone inflation is close to its peak,” ECB Governing Council member Yannis Stournaras said previously. Following that, ECB policymaker Martins Kazaks said in an interview with Eurofi magazine that the “ECB will hike above a neutral rate if needed.” However, he added that a broad and protracted recession could slow rate hikes. Meanwhile, Governing Council member Mario Centeno said that “the ECB may achieve inflation goal with slow normalization.”

On the other hand, the British Pound (GBP) fails to cheer the chatters surrounding the multi-billion pounds worth of stimulus from incoming Prime Minister Liz Truss.

Earlier in the week, Liz Truss won the PM candidate race, which in turn propelled chatters over her plan to freeze energy prices and help power companies in Britain. “British Prime Minister Liz Truss plans to freeze energy prices for households for 18 months and allow energy companies to take out government-guaranteed loans to make up for the difference between the wholesale and retail prices,” BBC reported on Tuesday. The news also stated that Truss is expected to unveil her plan on Thursday. With this UK PM Truss proposed to freeze roughly £130 billion in household energy bills while mulling another £40 billion for small businesses.

However, fears of the recession took clues from the firmer data and growing uncertainty over the Bank of England’s (BOE) next move as Truss has criticized the British central bank multiple times for its late reaction to the inflation woes.

It should be noted that the recession fears and energy crisis in the bloc, as well as in the UK, contradict the hawkish Fed bets to weigh on the market sentiment ahead of the second-tier EU data and speech from BOE Governor Andrew Bailey.

Technical analysis

A successful upside break of the weekly resistance line, at 0.8610 by the press time, appears necessary for the EUR/GBP bulls to keep the reins. That said, the recent top surrounding 0.8675 and the yearly peak marked in June near 0.8720 will be in focus.