EUR/GBP rebounds as markets weigh inflation and policy outlook

• The Euro edges higher despite disinflation and dovish ECB signals.
• The British Pound holds firm as the BoE remains cautious on rate cuts.
• Thursday’s Eurozone and UK data could reshape rate path expectations, influencing the trajectory for EUR/GBP

The EUR/GBP exchange rate is staging a modest rebound on Wednesday, recovering from a week-long decline as investors respond to stable German inflation figures and cautious commentary from both the European Central Bank (ECB) and Bank of England (BoE) officials. 

At the time of writing, the pair is trading around 0.8433, up 0.35% on the day, after touching lows near 0.8400 earlier in the session. The move reflects growing investor caution ahead of high-impact data releases on Thursday that could reset expectations for both central banks.

Euro reclaims ground amid steady German inflation and ECB commentary

The Euro (EUR) shows signs of recovery following the release of Germany’s Harmonized Index of Consumer Prices (HICP), which remained steady at 2.2% year-on-year in April. While broadly in line with forecasts, the data reinforces the Eurozone’s broader disinflationary trend, supporting expectations for a potential ECB rate cut in June. Comments from ECB officials, including Isabel Schnabel, also weighed in, emphasizing maintaining the current policy stance in light of lingering global uncertainties. 

Although not a catalyst for a sharp rally, the combination of steady inflation and a dovish tone helped the euro recover modestly after a series of losses.

UK Pound holds firm on policy uncertainty and ongoing inflation pressures

Meanwhile, the British Pound (GBP) remains resilient, supported by lingering doubts over the BoE’s timeline for easing. While a rate cut remains likely later this year, recent UK data has complicated the picture. The labour market has shown notable strength, and policymakers are increasingly concerned about goods price inflation and rising household inflation expectations. BoE official Catherine Mann cited these risks during a speech on Wednesday, while Deputy Governor Sarah Breeden announced regulatory consultations to strengthen market stability, both signaling a cautious stance that has helped support the Pound.

Diverging outlooks set the stage for Thursday's key data

With the ECB and BoE nearing potential inflection points in their policy paths, Thursday’s economic releases are expected to play a pivotal role in shaping the EUR/GBP direction. In the Eurozone, markets will digest Q1 GDP, employment, and industrial production figures, with GDP forecast at 0.4% QoQ and 1.2% YoY. Meanwhile, the UK will publish its Q1 GDP, expected at 0.6% QoQ, alongside flat monthly growth and weaker production figures.

The data could offer fresh momentum for the pair as traders recalibrate rate expectations heading into June.