EUR/GBP Establishes a Cushion Near 0.8830 Prior to UK Employment and Eurozone GDP Data

The EUR/GBP pair is amassing an intermediate cushion around 0.8830 during the Tokyo session. As investors await the January employment report for the United Kingdom, it is probable that the asset's price may change in the near future. Despite the European Commission's (EC) new GDP estimate and inflation estimates for the Eurozone, the cross' volatility decreased on Monday.

In its quarterly report, the EC upped its economic growth forecast for 2023 from 0.3% to 0.9% and expects growth to remain stable at 1.5% for CY2024. While the inflation forecast for 2023 was reduced from 6.1% to 5.6% on an annualized basis. Inflation is anticipated to be 2.5% in 2024, a decrease from the previous forecast of 2.6%.

As a result of dropping energy prices and easing supply-chain limitations, inflation projections for the Eurozone have been lowered. However, additional interest rate increases by the European Central Bank are probable, as the inflation rate is significantly above the 2% target. ECB Vice-President Luis de Guindos's statement on Monday that "rate hikes beyond March will depend on data" indicates that ECB President Christine Lagarde will almost probably boost interest rates by 50 basis points (bps).

On the economic front, it is projected that the Eurozone's preliminary quarterly and annual Gross Domestic Product (GDP) estimates would remain steady at 0.1% and 1.9%, respectively. This indicates that the Eurozone did not have a recession in CY2022.

The bulls of the British pound will be on edge until the United Kingdom's employment numbers are released. The unemployment rate is expected to remain unchanged at 3.7%. Investors will closely monitor the Average Earnings data excluding bonuses, which is projected to increase by 6.5%. This may present new challenges for the Bank of England (BoE), which is struggling to gain the upper hand in its battle against inflation.

In terms of long-term recommendations for the British Pound, economists at Rabobank anticipate that the British Pound will remain under pressure in the coming months. "The United Kingdom is the only G7 economy that has not yet recovered to pre-pandemic levels. In addition to slow growth, its fundamentals include high inflation, low productivity, sluggish investment growth, Brexit-related trade frictions, and a current account deficit."