EUR/GBP stabilizes around 0.8450, downside remains favored on ECB-BOE policy divergence

• EUR/GBP is aiming lower below 0.8440 on wide ECB-BOE policy divergence.
• The BOE is expected to elevate its interest rates further due to large real income shocks.
• Germany's HICP is seen in line with the prior release of 8.2% on an annual basis.

The EUR/GBP pair is consolidating in a narrow range of 0.8439-0.8446 after a perpendicular downside move. The asset is auctioning in a balanced market profile from the past two trading sessions. However, the downside move is expected on higher odds of an escalation in European Central Bank (ECB)-Bank of England (BOE) policy divergence.

The comments from BOE Governor Andrew Bailey that its economy is facing a very large real income shock have triggered the odds of one more bumper rate hike by the BOE. The inflation rate has escalated to 9.1% in the UK economy and the investing community is betting on a two-digit inflation figure. Apart from that, BOE Bailey dictated that the economy will bring the price pressures to the targeted rate of 2% in a time period of two years.

This week, the economic data from the UK Office for National Statistics will be the major event. The Gross Domestic Product (GDP) is seen at 0% vs. -0.3% printed earlier. While the annual Manufacturing Production may slip to 0.3% from the former release of 0.5%.

On the eurozone front, the ECB has not followed the footprints of its Western leaders yet and has not paddled their interest rate. Policy tightening measures have been initiated and the Asset Purchase Program (APP) has been concluded. However, the interest rate elevation is still not featured to combat the Harmonized Index of Consumer Prices (HICP). This week, the release of the Germany HICP will be keenly watched.  As per the market consensus, the inflation rate is seen stable at 8.2%.