EUR/GBP rebounds to near 0.8590 as hawkish ECB bets remain steady, UK Employment eyed
- EUR/GBP has recovered from 0.8580 as ECB to remain hawkish despite deepening fears of recession.
- Eurozone final Q1 GDP contracted by 0.1% while the street was anticipating a stagnant performance.
- Higher interest rates by the BoE are keeping pressure on the BoE.
The EUR/GBP pair has shown a recovery move after finding buying interest near 0.8580 in the early European session. The cross has rebounded despite the Eurostat reported a contraction in final Q1 Gross Domestic Product (GDP) numbers.
On Thursday, the final Q1 GDP displayed a contraction by 0.1% while the street was expecting a stagnant performance from a downwardly revised figure of 0.1% expansion. Annual GDP expanded by 1.0% but at a slower pace than the prediction of 1.2% and the former release of 1.3%. The odds for Eurozone falling into a recession are extremely solid as the European Central Bank (ECB) is not going to pause its policy-tightening spell to tame sticky inflation.
Investors should note that the German economy has already reported a recession after registering a contraction in GDP figures consecutively for two quarters.
According to a clear majority of economists polled by Reuters, ECB President Christine Lagarde will hike its key interest rates by 25 basis points (bps) on June 15 and again in July before pausing for the rest of the year. The move of hiking rates further by a total of 50 bps would push key rates to 4.25%.
On the Pound Sterling front, investors are shifting their focus toward the United Kingdom Employment data, which will release next week. Higher interest rates by the Bank of England (BoE) and expectations of more rate hike announcements by BoE Governor Andrew Bailey would keep pressure on the overall hiring process.
Economists at ING said second or third-tier United Kingdom data has been quite mixed recently, but the main event on the data front will be next Tuesday's release of jobs and wages data. We see that as a negative event risk for the Sterling, where wage growth could continue to slow and take some of the steam out of the 100 bps+ Bank of England tightening expectations still priced in by money markets.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
