EUR/GBP builds cushion around 0.8680 as focus shifts to UK Employment

• EUR/GBP has gauged an intermediate cushion around 0.8680 ahead of UK Employment and Eurozone GDP.
• Labor shortages and higher food price inflation have been major factors for double-digit UK inflation.
• MNI reported on Monday that the ECB will most likely raise key rates once or twice more in this tightening cycle.

The EUR/GBP pair is building a base after finding an intermediate cushion around 0.8680 in the Asian session. The cross is attempting a recovery after a perpendicular sell-off in the past two trading sessions.

The Pound Sterling is stealing the show as United Kingdom’s inflation is not softening despite consistent interest rate hike announcements from the Bank of England (BoE). UK’s inflation is still in the double-digit figure and BoE policymakers have admitted that they underestimated the strength and persistence of UK inflation.

Investors should know that BoE Governor Andrew Bailey hiked interest rates by 25 basis points (bps) to 4.5% last week. Labor shortages due to early retirement and higher food price inflation have been major factors, which are accelerating inflationary pressures.

Going forward, UK Employment data will remain in the spotlight. Investors would like to ascertain how tight UK labor market conditions are getting further. As per the consensus, the three-month Unemployment Rate is seen unchanged at 3.8%. Average Earnings excluding bonuses are expected to accelerate to 6.8% from the former release of 6.6%. This could fuel inflationary pressures further as more funds in the hands of households would trigger the overall demand. Claimant Count Change is seen declining by 10.8K.

On the Eurozone front, investors are keeping focus on the preliminary Gross Domestic Product (GDP) data. The street is anticipating a steady growth rate and the economy would manage to avoid recession ahead. Apart from that, developments over the interest rate guidance will remain in action. MNI reported on Monday that the European Central Bank (ECB) will most likely raise key rates once or twice more in this tightening cycle.