EUR/GBP edged lower on Wednesday, trading near 0.8690 in Asian hours after posting gains of more than 1% in the previous session. The cross weakened as mixed UK inflation figures weighed on the Pound Sterling (GBP), while attention now turns to the Eurozone’s final Harmonized Index of Consumer Prices (HICP) for August and a speech by European Central Bank (ECB) President Christine Lagarde later in the day.
UK inflation data offers mixed signals
The UK Consumer Price Index (CPI) rose 3.8% year-on-year in August, slightly below expectations of 3.9%, though still well above the Bank of England’s (BoE) 2% target. On a monthly basis, inflation accelerated to 0.3% from 0.1%, in line with forecasts.
Core CPI held steady at 3.6% YoY, matching estimates but down from July’s 3.8%. Meanwhile, services inflation eased to 4.7% YoY in August from 5% previously, pointing to gradual cooling in price pressures. The data complicates the BoE’s policy outlook, with markets now leaning toward the central bank holding rates at 4% on Thursday.
Euro sentiment supported by ZEW survey
On the Euro side, investor confidence improved after Germany’s ZEW Economic Sentiment Index rose to 37.3 in September from 34.7 in August, far exceeding forecasts of 27.3. The Eurozone-wide sentiment index also ticked higher to 26.1, beating expectations of 20.3.
However, the ZEW Current Situation Index for Germany fell sharply to -76.4 from -68.6, underscoring persistent weakness in underlying activity. Despite this, strategists at Scotiabank noted that the stronger survey results are tempering expectations of ECB easing and supporting the Euro through yield spreads.
Outlook
EUR/GBP is likely to remain sensitive to inflation developments on both sides. A stronger Eurozone HICP print or hawkish comments from Lagarde could lift the Euro, while firmer UK inflation dynamics would bolster the case for a steadier Pound. The 0.8700 mark remains a key near-term pivot for the cross.
