Euro strengthens against British Pound as ECB signals June hike

The EUR/GBP cross gathers strength to near 0.8630 during the early European session on Tuesday. Hawkish remarks from the ‌European Central Bank (ECB) provide some support to the Euro (EUR) against the British Pound (GBP). Traders will take more cues from the preliminary reading of Germany’s inflation data, which are due later on Friday. 

ECB board member Isabel Schnabel said on Tuesday that the central bank should raise interest rates in June, even if ongoing peace talks with Iran yield a deal, as the conflict has been far longer than projected and high energy prices are spilling into the broader economy. 

Additionally, ECB policymaker Martin Kocher said over the weekend that the central bank is increasingly leaning toward an interest rate hike next month as the Iran conflict adds to inflation pressures. According to the ECB Watch Tool, financial markets are now pricing in nearly an 85% probability of a 25-basis-point hike from the ECB for the June meeting. 

Markets have scaled back imminent expectations for a rate hike following softer inflation data and an unexpected rise in the Unemployment Rate to 5.0% for April. Analysts from Oxford Economics and Goldman Sachs see the benchmark rate to stay unchanged at 3.75% through the end of 2026. Goldman Sachs further stated that the bar remains low for a few summer rate rises if energy costs surge again.