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EUR/GBP consolidates above 0.8600 ahead of BoE decision.
Economic data in the euro zone pointed to an uncertain outlook.
Market participants expect the Bank of England to raise interest rates by 25 basis points to 5.25% on Thursday.
In early Asian trading on Thursday, the EUR/GBP saw-saw around 0.8600. Before the Bank of England (BOE) announced its interest rate decision that day, market participants tended to wait and see.
The European Central Bank raised interest rates by 25 basis points to 4.25% last week. European Central Bank President Christine Lagarde said that the European Central Bank will strive to achieve the medium-term inflation target of 2%.
On the data front, Germany’s unemployment rate fell to 5.6% in June from 5.7% expected in the previous month. The German manufacturing PMI final reading came in at 38.8 in July. Meanwhile, Eurozone HCOB manufacturing data was in line with the market at 42.7.
Earlier in the week, German Retail Sales fell 0.8% on month, against -0.2% expected and 0.2% previously. The group’s retail sales fell 1.6% on an annualized basis in June, compared with expectations for a 6.3% drop, after falling -3.6% in May.
On the other hand, the pound weakened as investors worried about a possible recession in the UK economy. That said, the UK consumer price index (CPI) fell sharply to 7.9% in June from 8.7% in May, which may require the Bank of England to slow down the pace of rate hikes.
Market participants expect the Bank of England to raise interest rates by 25 basis points to 5.25% on Thursday. Notably, the Bank of England unexpectedly raised Bank Rate by 50 basis points (bps) to 5.00% at its last meeting. Further rate hikes from the Bank of England weighed on sterling, fueling concerns over the Bank of England’s most aggressive rate hike in three decades and its impact on the UK economy.
Looking ahead, market participants will be closely watching the Bank of England’s rate decision and statement. This event could provide a hint for a clear direction for EUR/GBP. In the absence of major economic data from the euro zone, volatility in the pound will be the main driver of the EUR/GBP fork.
