• The Euro regains ground against the Pound Sterling on Thursday, with the cross returning to the upper range of the 0.8600s.
• EUR/GBP edges up following hawkish comments from ECB's Nagel.
• From a wider perspective, the cross remains sideways, with both currencies weighed by risk aversion.

The Euro (EUR) edges up slightly against the British Pound (GBP) on Thursday, yet moving within previous ranges, following downbeat German consumer confidence figures and hawkish comments by European Central Bank (ECB) member and Bundesbank President Joachim Nagel.

Nagel said earlier on Thursday that an interest rate hike in April will be an option at next month’s ECB meeting “if the war in the Middle East raises the spectre of an inflation surge in the Eurozone".

These comments follow Wednesday’s remarks by ECB President Christine Lagarde, who affirmed that the central bank will have to respond “in a forceful pr persistent way” if consumer inflation looks set to be well above the bank’s 2% target. 

Higher borrowing costs might derail recovery

The prospect of higher interest rates amid sluggish economic growth in the region’s leading economies is keeping investors wary, weighing on demand for the common currency.

On Thursday, the German GfK Index showed that consumer confidence is expected to plunge to -28 in April from -24.8 in March. Data from Wednesday showed that the German IFO Business Climate deteriorated too, albeit less than expected, while the PMI survey underscored that the rise in energy prices could easily derail a tame economic recovery.

The Pound Sterling (GBP), however, is not faring much better, which keeps the cross in a choppy, sideways trading cycle. UK inflation data revealed that consumer prices remained at 3%, even before the start of the war, which has boosted market expectations that the Bank of England will be forced to hike rates more than once this year.