EUR/GBP aims to stretch recovery above 0.8650 ahead of preliminary Eurozone Inflation

• EUR/GBP is expected to surpass the immediate resistance of 0.8650 confidently ahead of Eurozone inflation.
• ECB Šimkus expects a 25 basis points (bps) rate hike in June and July to tame sticky inflation.
• More interest rate hikes are anticipated from the BoE as UK’s inflation has yet not shown promising signs of deceleration.

The EUR/GBP pair is aiming to extend its recovery from 0.8630 above the immediate resistance of 0.8650 in the early Tokyo session. The cross is getting strength ahead of the release of the preliminary Eurozone Harmonized Index of Consumer Prices (HICP) data (May), which will release on Thursday.

As per the preliminary report, core monthly HICP is seen expanding by 0.8% at a slower pace than the 1% recorded for April. Annual core HICP is expected to soften marginally to 5.5% vs. the prior release of 5.6%. The headline HICP is seen decelerating sharply to 6.3% against the former release of 7.0%.

Eurozone’s inflation has remained extremely stubborn in the past few months one month of softening would be insufficient for pausing the European Central Bank (ECB) from further policy-tightening. ECB Governing Council Gediminas Šimkus said on Tuesday that he expects a 25 basis points (bps) rate hike in June and July. This indicates that ECB’s interest rate would at least peak around 4.25%.

Apart from Thursday’s Eurozone inflation data, the speech from ECB President Christine Lagarde will be keenly watched. ECB Lagarde is expected to provide interest rate guidance for June’s monetary policy meeting.

Meanwhile, inflationary pressures in the United Kingdom economy are showing no meaningful signs of easing. On Tuesday, British Retail Consortium (BRC) reported a historic jump in shop price inflation to 9.0% since the formation of the agency in 2005. The food price inflation slowed marginally to 19.1% from the prior figure of 19.2% led by lower energy and commodity cost.

UK’s inflation has yet not shown promising signs of deceleration, therefore, more interest rate hikes are anticipated from the Bank of England (BoE) ahead. BoE Governor Andrew Bailey is expected to announce two more quarter-to-a-point interest rate hikes in the next three meetings as forecasted by Nomura.