EUR/GBP struggles to stay above 0.8550, eyes on ECB Lagarde speech

EUR/GBP hovers around 0.8560 during the Asian session on Monday, struggling to hold ground due to the possibility of an interest rate hike by the European Central Bank (ECB). The cross pair is under downward pressure as investors exercise caution, fearing that additional monetary tightening by the ECB could potentially tip the Eurozone's economy into a recession.

Traders await the press conference of ECB President Christine Lagarde, which is due on Monday. Lagarde may detail how the ECB observes the current and future state of the Eurozone’s economic scenario. The policymaker may provide indications of the ECB's monetary policy decision. 

Additionally, the member of the ECB Governing Council, Pierre Wunsch points to ongoing inflation as a factor for advocating the necessity of further tightening of monetary policy. Pierre stated "I'm leaning towards the idea that we might need to take further action," during a radio interview broadcast by Bloomberg on Saturday. At first, the policymaker mentioned the diminishing price pressures but then asserted that the ECB's 2% target rate would not be reached until 2025 due to persistent inflation.

Conversely, EUR/GBP traders are exercising caution due to the challenging economic situation in the United Kingdom (UK) amid the hawkish outlook regarding a potential 25 basis point (bps) interest rate hike at the Bank of England's (BoE) September meeting.

During the weekend, UK Finance Minister Jeremy Hunt told to Reuters, “We are on track to halve inflation this year and by sticking to our plan we will ease the pressure on families and businesses alike." Hunt also mentioned on BBC that he expects a brief uptick in inflation in September but anticipates it to subsequently decline to around 5.0%, in line with the Bank of England's (BoE) projections.

Market participants will monitor British policymakers’ return to the Parliament after a vacation, and they may express optimism regarding Friday's revised economic data, which revealed a quicker post-pandemic recovery for the UK economy than previously thought.