EUR/GBP finds support near 0.8550, eyes on UK Inflation data

• EUR/GBP finds an intermediate cushion near 0.8550, downside remains favored.
• The pace for unwinding the policy-tightening by the ECB is expected to be more aggressive than the BoE.
• Investors await the UK Inflation data for fresh guidance.

The EUR/GBP pair finds a temporary cushion near 0.8550 in Monday’s European session. The cross remains on the back foot as investors expect that the pace at which the European Central Bank (ECB) will roll back its restrictive monetary policy stance will be more aggressive than the Bank of England (BoE).

A rate-cut move by the ECB in the June meeting is widely anticipated. ECB policymakers see that inflation is on course to return to the desired rate of 2%. In late Asian session, ECB policymaker Martins Kazaks said, “it's quite likely June will be when we start to cut rates,” Bloomberg reported. However, he cautioned over aggressively reducing interest rates and advised to follow a gradual approach.

ECB Kazaks cautioned about reducing borrowing rates aggressively as it could revamp price pressures again. While a few policymakers still hope that the ECB has room to cut interest rates in the July meeting too.

On the United Kingdom front, investors shift focus to the Consumer Price Index (CPI) data for April, which will be published on Wednesday. The UK Office for National Statistics (ONS) is expected to show that the annual headline declined to 2.1% from the prior reading of 3.2%. The core CPI that strips off volatile items is estimated to have softened to 3.7% from 4.2% in April.

A sharp decline in the UK inflation data will boost prospects of rate cuts by the BoE, which traders expect that the central bank could start from the June or August meeting. Meanwhile, BoE Deputy Governor Ben Broadbent said in his commentary in Monday’s London session that he sees rate cuts likely in the summer. Broadbent added that rates will be less restrictive at some point.