EUR/GBP traded slightly higher on Thursday around 0.8710 during Asian hours, stabilizing after two consecutive daily losses. However, the cross faces downside risk as cautious remarks from Bank of England (BoE) officials continue to lend support to the Pound Sterling (GBP).
BoE officials stress inflation persistence
BoE policymaker Catherine Mann warned on Wednesday that the risk of “higher-for-longer” inflation is materializing, reinforcing the case for keeping interest rates on hold. Similarly, Deputy Governor Clare Lombardelli noted earlier this week that inflation shocks should not be dismissed as temporary, stressing that even one-off events can have lasting effects on price dynamics.
The hawkish tone from BoE policymakers suggests the central bank remains cautious about easing too soon, underpinning GBP strength against the euro.
Eurozone inflation rises in September
Data released Wednesday showed Eurozone inflation rising in line with expectations. Eurostat reported that the Harmonized Index of Consumer Prices (HICP) rose 2.2% year-on-year in September, up from 2% in August. Core HICP advanced 2.3% YoY, also matching forecasts. On a monthly basis, headline and core inflation both came in at 0.1%, with the core measure slowing from 0.3% in August.
While both annual headline and core inflation remain above the European Central Bank’s (ECB) 2% target, ECB President Christine Lagarde struck a balanced tone, saying there are no major threats to the euro-area inflation outlook but reiterating the need for vigilance. Her remarks suggested the ECB is in no rush to cut borrowing costs, though the stance appears less hawkish compared to the BoE.
Outlook for EUR/GBP
The policy divergence between the BoE’s cautious inflation stance and the ECB’s more measured approach could tilt momentum in favor of the Pound, raising the risk of downside in EUR/GBP. A sustained move below 0.8700 would open the door for further declines, while resistance near 0.8750 caps the immediate upside.
