The EUR/GBP pair has seen a strong surge to near 0.8380 in the European session, driven by soft UK inflation data that has prompted bets on a dovish stance from the Bank of England (BoE). The latest Consumer Price Index (CPI) report for September showed that inflation in the UK is growing at a slower-than-expected pace, with both headline and core CPI figures coming in below estimates.
The annual headline inflation rate in the UK decelerated to 1.7%, falling below the BoE’s target of 2%. This slowdown in inflationary pressures has raised expectations of further interest rate cuts by the central bank in the coming months. The core CPI, which excludes volatile items, also slowed to 3.2%, below estimates of 3.4% and the previous release of 3.6%.
In addition to the overall slowdown in inflation, the services sector in the UK also saw a sharp decline in inflation, mainly due to lower wage growth. Service inflation, which is closely monitored by BoE officials, grew by 4.9%, down from 5.6% in August. The underperformance of the Pound Sterling (GBP) against other major currencies has been attributed to BoE Governor Andrew Bailey’s recent comments on the interest rate outlook, which were perceived as dovish.
Investors are now awaiting a speech by European Central Bank (ECB) President Christine Lagarde for fresh insights on interest rates. Lagarde’s comments, scheduled for 19:40 GMT, are expected to be on the dovish side, given the sharp deceleration in price pressures in the Eurozone in September. Revised estimates show that the annual CPI (EU norm) in France slowed to 1.4% in September, below expectations and prior estimates of 1.5%.
Overall, the EUR/GBP pair has seen a strong uptrend in the wake of soft UK inflation data, with expectations of further monetary easing by the BoE driving the market sentiment. Investors are closely watching central bank officials and their comments for clues on future interest rate decisions, which will continue to impact the currency pair’s movement in the coming days.
