EUR/GBP eyes further decline below 0.8700 as BoE sets for a further rate hike

• EUR/GBP is eyeing further sell-off below 0.8700 as BoE to raise rates further to bring down double-digit inflation.
• Investors have been gung-ho for the Pound Sterling amid an absence of a confident roadmap for bringing down the UK’s inflation.
• Global interest rate hikes have heavily impacted German Industrial Production.

The EUR/GBP pair looks vulnerable above the round-level support of 0.8700 in the Asian session. The cross is expected to display more weakness as investors are anticipating more interest rate hikes from the Bank of England (BoE) to soften double-digit United Kingdom inflation.

Investors have been gung-ho for the Pound Sterling amid the absence of a confident roadmap for bringing down the UK’s inflation to a 2% target. Economists at MUFG Bank do not expect the Bank of England meeting to weigh on the Pound Sterling. The Pound has remained the top-performing G10 currency in 2023, and the second-best performing in Q2 to date

BoE Governor Andrew Bailey has already pushed interest rates to 4.25% in the last 11 monetary policy meetings and now one more interest rate hike is widely anticipated. However, it is still difficult to agree that inflationary pressures will cover the huge gap between current inflation and the desired one.

Historic high food inflation, labor shortages due to earning retirements, and higher wage offerings have been major catalysts, which have been fueling inflationary pressures.

On the Eurozone front, higher interest rates by the European Central Bank (ECB), declining credit from Europe commercial banks, and weak Industrial output are claiming for a recession ahead. On Monday, monthly German Industrial Production contracted sharply by 3.4% vs. the expectations of a 1.0% contraction and the former release of a 2.1% decline. Global interest rate hikes have heavily impacted German Industrial Production due to the bleak demand for automobiles.

Over the interest rate guidance, ECB chief economist Philip Lane said that there was "a lot of disinflation" coming later this year but added that there was still "a lot of momentum" in inflation.