The EUR/GBP pair rose to around 0.8340 during Thursday’s Asian trading hours, recovering from two consecutive days of losses. However, the pair’s upward momentum could face resistance as stronger-than-expected UK inflation data continues to influence market expectations for Bank of England (BoE) policy decisions.
UK Inflation Hits Six-Month High
The UK’s Consumer Price Index (CPI) for October surged to 2.3% year-over-year, up from 1.7% in September and surpassing the forecast of 2.2%. Monthly CPI rose by 0.6%, rebounding from a flat reading in September. Core CPI, excluding volatile food and energy prices, climbed to 3.3%, exceeding market expectations of 3.1%. Additionally, services inflation increased to 5% from 4.9%.
These figures indicate persistent price pressures, potentially challenging the BoE’s path toward further interest rate cuts. Markets are now reassessing the likelihood of easing at the central bank’s December meeting, with some traders adopting a more cautious stance.
ECB Commentary and Eurozone Dynamics
European Central Bank (ECB) policymaker Yannis Stournaras remarked on Wednesday that the Eurozone is nearing sustainable achievement of its 2% inflation target. However, he urged policymakers to avoid falling short of this objective. His comments align with broader ECB efforts to balance inflation control with the challenges of slowing economic growth.
The EU Financial Stability Review highlighted increasing geopolitical tensions and global trade disputes as risks exacerbating sovereign vulnerabilities and economic shocks. Despite these challenges, the ECB has enacted three rate cuts since June, with inflation nearing target levels. Markets anticipate another 25-basis-point cut in December, though the possibility of a larger reduction remains on the table.
Outlook for EUR/GBP
While the euro benefits from ECB policymakers’ cautious optimism, the stronger UK inflation report lends support to the pound, potentially capping gains for the EUR/GBP pair. Market focus will remain on incoming economic data and central bank commentary, as both the BoE and ECB navigate their paths amid uncertain growth and inflation dynamics.
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