Euro hovers near two-week high against pound on positive outlook

Euro climbed in European trade against the pound for another session, almost touching two-week highs amid positive outlook for the euro zone economy. 

Speculation is spreading about a rapid pace of rate hikes by the European Central Bank, while negative outlook in the UK continue to pressure the pound. 

EUR/GBP rose 0.2% to 0.8892, with a session-low at 0.8856, after rising 0.5% yesterday against the pound yesterday, the fourth profit  in five days following bullish remarks by ECB officials. 

EUR/GBP hit two-week highs earlier this month at 0.8896 following high European inflation data.

European Rates

Recent bullish remarks by ECB officials bolstered the case for multiple more rate hikes following the expected 0.5% hike in March. 

Estonian Central Bank President Madis Müller said the ECB must hike rates and maintain them at high levels for an extended duration to contain inflation, asserting the March rate hike won't be the last.

Similarly, National Bank of Belgium President Pierre Wunsch said the ECB must do more as inflation remains too high with no clear signals of decline so far.

He expects European rates to surpass 4% this year, noting that inflation movements are the main determinant of the path forward for the ECB.

UK Rates

Currently, Bank of England is the least bullish of the major western banks following bearish remarks by Governor Andrew Bailey, pressuring the pound. 

Bailey nonetheless asserted there still remains multiple rate hikes by the BoE until inflation is brought back under control.

The BoE is expected to hike interest rates by 25 basis points in March, while neutral interest rates are expected now at 4.75% this year, down from 5%. 

Estimates

Analysts believe it to be difficult for the BoE to go in the same pace as the ECB as the British economy faces heavier struggles. 

The EUR/GBP is expected to find support following the 0.8900 level for the time being as momentum rises on the side of the common currency.