EUR/GBP updates three-week lows, as ECB considers its policy sufficiently restrictive

• EUR/GBP marks a new three-week low at 0.8620 as the ECB is expected to maintain its monetary policy.
• Eurozone GDP for the third quarter is expected to contract due to the consequences of rising interest rates.
• The British pound will dance to the tune of British factory data.

On Wednesday, EUR/GBP hit a new three-week low at 0.8620, as European Central Bank (ECB) Governing Council member and Bank of France President Francois Villeroy de Galhau believes monetary policy It is restrictive enough.

The ECB’s Villeroy warned that further policy tightening is not appropriate at this time, amid a positive outlook for oil prices due to escalating tensions in the Middle East.

Meanwhile, the eurozone economy is registering poor results in terms of employment, production and consumer spending, consequences of the increase in interest rates by the central bank. The head of economic policy at the ECB, Pablo Hernández de Cos, foresees a negative reading of the Gross Domestic Product (GDP) in the third quarter of 2023.

ECB policymakers have been insisting on the need to keep interest rates higher for longer, as the last leg of inflation could prove sticky. An ECB survey showed that Eurozone consumers see three-year inflation at 2.5% in August, down from 2.4% in July.

As for the British Pound, investors are awaiting UK manufacturing data, which will be released on Thursday at 06:00 GMT. Investors expect a monthly contraction in manufacturing production of 0.3%, compared to the 0.8% contraction recorded in July. Monthly Industrial Production is forecast to decline at a slower pace of 0.2% versus a 0.7% contraction in July. The monthly Gross Domestic Product (GDP) will grow by 0.5%, compared to the 0.5% drop in July.

Investors appear confused about the outlook for interest rates after hawkish Bank of England (BoE) policymaker Katherine Mann supported the aggressive tightening approach this week. Mann spoke of the need to reduce inflation to 2% and end consumer inflation expectations.