EUR/GBP struggles around 0.8680, investors await clarity on UK political drama

The EUR/GBP pair faces pressure around the immediate resistance of 0.8680 in the Tokyo session. The asset has opened inside the previous two-day trading range and is auctioning internally as investors seek more clarity over the UK’s political mess.

The removal of UK Chancellor Kwasi Kwarteng after she proposed for suspension of an increase in corporate taxes from April 2023 to 25% has triggered political stability in the UK. The proposal of stability in corporate taxes resulted in a vertical north-sided movement in the UK government bonds, and pension-fund managers were called to channelizing more margin money to safe insurance products.

Meanwhile, bets for a bigger rate hike by the Bank of England (BOE) in the November monetary policy meeting have soared significantly after the hawkish guidance by Bank of England (BOE) Governor Andrew Bailey. BOE’s Bailey stated, "We will not hesitate to raise interest rates to meet the inflation target." The central bank believes that price pressures demand more robust policy-tightening measures than those announced in August.

In the future, the UK Consumer Price Index (CPI) data will remain in focus. Per the consensus, the headline and core inflation will escalate by ten basis points each to 10% and 6.4%, respectively.

On the Eurozone front, October’s monetary policy is gaining more traction. On Friday, European Central Bank (ECB) policymaker Bostjan Vasle stated that 75 basis points (bps) rate hikes at the October and December meetings might be appropriate, as reported by Reuters. He added, "Inflation may be close to peak if there are no new shocks; longer-term expectations still anchored."

Further, Goldman Sachs sees a terminal rate for the ECB at 2.75%, which will hit by March.