- EUR/GBP declines to near 0.8635 in Monday’s early European session.
- ECB rate hike chance rises as Iran conflict fuels inflation.
- BoE’s Taylor sees less risk of inflation persistence than in 2022.
The EUR/GBP cross trades in negative territory around 0.8635 during the early European trading hours on Monday. Traders await the speeches from the European Central Bank (ECB) policymakers later this week, including President Christine Lagarde, for fresh impetus.
The ECB hinted that rising energy prices might push this year’s inflation forecasts upward, supporting the case for a potential interest rate hike this year. According to Reuters, the case for the ECB to raise the interest rates in June is nearly sealed, but the central bank is likely to be noncommittal about any further move, looking to temper bets for a quick follow-up step in July.
On the UK’s front, softer UK Retail Sales data and an unexpected rise in the Unemployment Rate to 5.0% have prompted traders to scale back expectations for future Bank of England (BoE) rate hikes by December. This, in turn, might weigh on the GBP and acts as a tailwind for the cross.
BoE Policymaker Alan Taylor said that an “extended hold” is likely sufficient, adding that second-round inflationary impacts are less severe than those seen during the 2022 Russia-Ukraine invasion due to a cooling domestic jobs market. Financial markets are pricing in two quarter-point increases in interest rates by the UK central bank by the end of the year.
