EUR/GBP holds positive ground above 0.8800 after UK CPI data
- EUR/GBP drifts higher to around 0.8815 in Wednesday’s early European session.
- UK CPI inflation eased to 3.6% YoY in October from 3.8% in September.
- Markets have priced in nearly a 25% chance of a 2026 ECB rate cut.
The EUR/GBP cross gains ground to near 0.8815 during the early European session on Wednesday. The Pound Sterling (GBP) edges lower against the Euro (EUR) after the UK Consumer Price Index (CPI) inflation report. The final reading of the Harmonized Index of Consumer Prices (HICP) inflation report from the Eurozone will be published later on Wednesday.
Data released by the United Kingdom’s Office for National Statistics on Wednesday showed that the country’s headline CPI rose 3.6% YoY in October, compared to an increase of 3.8% in September. This reading came in line with the market consensus. The Core CPI, which excludes the volatile prices of food and energy, climbed 3.4% YoY in October versus 3.5% prior, meeting the expectation of 3.4%.
Meanwhile, the monthly UK CPI inflation increased to 0.4% in October from 0% in September. Markets projected a rise of 0.4%. The Pound Sterling attracts some sellers in an immediate reaction to the hotter UK CPI inflation data.
Following a series of rate cuts in 2024 and early 2025, the ECB has kept interest rates unchanged as inflation has stabilized near the 2% target. ECB policymakers Gabriel Makhlouf and Olaf Sleijpen made remarks that supported expectations that the central bank would stay on hold. The cautious stance of the ECB provides some support to the EUR against the GBP. Markets priced in a 25% chance of a 25 basis points (bps) ECB rate cut by July next year, down from 45% early last week.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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