The EUR/GBP cross built on the overnight goodish rebound from mid-0.8500s, or a nearly two-week low and gained strong positive traction on the last day of the week. The buying interest picked up pace during the early part of the European session and pushed spot prices to the 0.8650-0.8655 region, back closer to the weekly high.
The shared currency’s relative outperformance comes amid a clear signal by the European Central Bank that it would begin the rate hike cycle in June. Furthermore, a 50-bps hike in September is seen as an almost done deal and the bets were reaffirmed by stronger Eurozone consumer inflation figures released earlier this Friday.
According to the preliminary estimate published by Eurostat, the annualized Eurozone Harmonised Index of Consumer Prices (HICP) accelerated to 8.6% in June. This was well above market expectations for a rise to 8.4% from the 8.1% reported in May, which, in turn, was seen as a key factor that provided a fresh lift to the EUR/GBP cross.
On the other hand, the British pound was pressured by expectations that the Bank of England would adopt a gradual approach toward raising interest rates amid growing recession fears. Apart from this, concerns about fresh UK-EU tensions over the Northern Ireland Protocol of the Brexit agreement should act as a headwind for sterling.
The fundamental backdrop supports prospects for a further near-term appreciating move for the EUR/GBP cross. Hence, some follow-through strength towards reclaiming the 0.8700 mark, en-route the YTD peak around the 0.8720 region, remains a distinct possibility.