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Despite an increase in bullish BOE wagers, the EUR/GBP pair advances to 0.8640

Alina Haynes

Nov 01, 2022 17:57

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During the Tokyo session, the EUR/GBP pair aims to extend its recent rally beyond the 0.8625 level. After protecting the crucial support level of 0.8574 on Monday, the cross surged significantly. Long-term investors like the asset now that the euphoria generated by the UK's innovative leadership has diminished.

 

The nomination of Rishi Sunak as Prime Minister of the United Kingdom, the fifth leader in the past six years, provided bond markets with short-term stability. The synergy between British Prime Minister Rishi Sunak and Chancellor Jeremy Hunt is accountable for the reduction of the debt mess in an atmosphere of hyperinflation.

 

To lower the pile of debt, the administration is focusing on tightening fiscal policy by reducing spending and increasing tax rates on the general population.

 

According to Treasury insiders quoted in a Financial Times article published on Monday, Sunak and Chancellor Jeremy Hunt agreed that "those with the widest shoulders should be expected to face the heaviest burden" and that taxes will rise for all. They claimed that the administration believes it is vital to repair the hole in the economy generated by the minting of money to battle the spread of Covid-19 and to assist households with energy bills. And spending reductions seldom suffice to eliminate the deficit.

 

Governor Andrew Bailey of the Bank of England (BOE) is anticipated to further tighten monetary policy to minimize inflationary pressures. Analysts at Rabobank have predicted an increase of 75 basis points (bps) in interest rates. This would be the greatest rate hike during the current cycle.

 

In the interim, Euro investors anticipate future rate hikes from the European Central Bank (ECB) as the headline Harmonized Index of Consumer Prices (HICP) has increased to 10.7% opposed to the expected 10.2%. Price pressures have soared, necessitating additional rate hikes to combat inflation.

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