• EUR/GBP has crossed the 0.8600 hurdle as weak UK Employment data has dampened Pound Sterling’s demand.
• Higher households’ earnings in the UK economy are expected to add duel to inflationary pressures.
• ECB Lagarde is expected to hike interest rates further by 50 bps to 2.5%.

The EUR/GBP pair is hovering around the critical resistance of 0.8600 in the early Tokyo session. The cross rebounded firmly on Tuesday after testing previous week’s low around 0.8560 on weaker United Kingdom Employment data.

November’s Claimant Count Change surprisingly rose by 30.5K while the market participants were expecting a decline of 13.3K. Apart from that, Average Earnings soared to 6.1%, which has bolstered inflation expectations as higher households’ earnings will result in robust retail demand. No doubt, higher earnings will support households in offsetting higher payouts due to inflation-adjusted prices but will also leave more money in the palms of individuals for disposal, which will strengthen retail demand.

Going forward, the UK Consumer Price Index (CPI) data holds significant importance. As per the consensus, the annual headline inflation will decline to 10.9% from the former release of 11.1%. While the core CPI is seen unchanged at 6.5%.

This week, the major trigger in the UK economy will be the interest rate decision by the Bank of England (BOE). To soften the stubborn inflation, BOE Governor Andrew Bailey is expected to hike its interest rates further. Analysts from Danske Bank are expecting a 50 basis point (bps) rate hike announcement. 

The BOE in its latest Financial Stability report said that financial pressures on UK companies, especially for smaller firms, are expected to rise in 2023. Also, widespread signs of financial difficulty among UK households are yet to emerge.

On the Eurozone front, investors are focusing on the monetary policy announcement by the European Central Bank (ECB). ECB President Christine Lagarde is expected to hike its interest rates further by 50 basis points (bps) to 2.5%. The ECB is approaching its terminal rate, which is expected at 3%.