EUR/GBP gains some positive traction on Wednesday, albeit lacks follow-through.
The immediate market reaction to the softer UK inflation figures fade rather quickly.
Traders keenly await the BoE meeting on Thursday before placing directional bets.
The EUR/GBP cross attracts some buyers on Wednesday and jumps to a fresh daily peak, around the 0.8555-0.8560 region after the release of the UK consumer inflation figures. Spot prices, however, lack follow-through and remain confined in a familiar trading band held since the beginning of the current month.
The UK Office for National Statistics (ONS) reported that the headline CPI rose 0.6% in February vs. a 0.6% fall recorded in the previous month and consensus estimates. Meanwhile, the yearly rate decelerated more than expected, from 4.0% in January to 3.4% during the reported month – marking its lowest level since September 2021.
Adding to this, the Core CPI fall from the 5.1% YoY rate to 4.5% in February, also missing expectations. This comes on top of a technical recession in the UK during the fourth quarter and raises bets for an early rate cut by the Bank of England (BoE), which, in turn, undermines the British Pound (GBP) and provides a modest lift to the EUR/GBP cross.
The UK inflation, however, is still much above the BoE’s 2.0% target, which, in turn, helps limit losses for the GBP. The shared currency, on the other hand, remains depressed in the wake of expectations that the European Central Bank (ECB) may start cutting interest rates in June. This further contributes to capping gains for the EUR/GBP cross.
Moreover, traders seem reluctant to place aggressive directional bets and prefer to wait on the sidelines ahead of the BoE policy meeting on Thursday. Hence, it will be prudent to wait for a sustained breakout through the short-term trading range before positioning for an extension of the recent goodish rebound from the 0.8500 psychological mark.
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