EUR/GBP rises to near 0.8350 after weak UK CPI data

• EUR/GBP appreciates following the data release of the UK Consumer Price Index on Wednesday.
• The UK CPI increased by 2.8% year-over-year, falling short of the expected 2.9%.
• The Euro faced challenges amid expectations that the European Central Bank could reduce interest rates again in April.

The EUR/GBP pair regained ground on Wednesday following the release of disappointing Consumer Price Index (CPI) data from the United Kingdom (UK). The pair is currently trading around 0.8340 during Asian market hours.

In February, the UK’s CPI rose 2.8% year-over-year, slowing from January’s 3.0% increase and missing market expectations of 2.9%. Despite the decline, inflation remains above the Bank of England’s (BoE) 2% target. Meanwhile, core CPI, which excludes food and energy prices, increased by 3.5% YoY, easing from January’s 3.7% and coming in below the forecasted 3.6%.

The Pound Sterling (GBP) faced additional pressure after the BoE left interest rates unchanged at 4.5% last week. Eight of the nine Monetary Policy Committee (MPC) members voted to maintain current borrowing costs, while policymaker Swati Dhingra was the sole supporter of a 25-basis-point (bps) rate cut. Economists had anticipated that two officials might favor a reduction.

However, EUR/GBP’s gains could be capped as the Euro remains under pressure amid expectations that the European Central Bank (ECB) could lower interest rates again in April. ECB Governing Council member François Villeroy de Galhau stated on Tuesday that further rate cuts are possible and that the 2.5% deposit rate could drop to 2% by the summer’s end.

Meanwhile, ECB President Christine Lagarde told the European Parliament last week that the inflationary impact of trade tensions driven by US President Donald Trump would be temporary, as weaker economic activity would eventually ease inflationary pressures.