EUR/GBP hovers above 0.8700 with a negative tone after ECB decision

• EUR/GBP cross faces challenges as the ECB kept the deposit rate unchanged at 4.0%.
• BoE’s higher interest rate dampens the UK’s economy amid stubborn inflation.
• UK’s central bank is expected to maintain the current interest rates at 5.25%.

EUR/GBP struggles to recover losses registered in the previous session, trading around 0.8710 during the European session on Friday. The cross faced pressure after the policy decision by the European Central Bank (ECB). The central bank opted to keep the deposit rate unchanged at 4.0%, citing a worsening economic outlook for the Eurozone as the influencing factor.

Furthermore, ECB President Christine Lagarde is navigating a challenging economic landscape. The delicate balance between a weakening economy and strong inflationary pressures can be quite a juggling act. Keeping an eye on the Middle East crisis and staying data-dependent seems like a prudent approach.

On the flip side, the elevated interest rates set by the Bank of England (BoE) are having a detrimental impact on the United Kingdom's economy, exacerbating the challenges posed by stubborn inflation. Economic data reveals significant contractions across various sectors, with high inflation putting a strain on household budgets. Despite this, the persistent risks of inflation raise doubts among market participants regarding UK Prime Minister Rishi Sunak's ability to fulfill his promise of reducing headline inflation to 5.4% through the end of the year.

Investors will likely monitor the upcoming BoE interest rate decision scheduled for November 2, with widespread expectations that the BoE will maintain the current interest rates at 5.25%.