EUR/GBP steady as Eurozone inflation softens, UK outlook remains muted

• EUR/GBP remains stable around 0.8660 despite the release of Eurozone inflation figures.
• Eurozone inflation eases slightly in December, confirming a backdrop of moderate price pressures.
• A lack of major catalysts in the United Kingdom keeps the Pound Sterling in a wait-and-see mode.

EUR/GBP trades around 0.8660 on Wednesday at the time of writing, virtually unchanged on the day, highlighting a market lacking a clear trend. The pair remains confined to narrow ranges as investors digest the latest macroeconomic data from the Eurozone while waiting for new cues from the UK side.

Data published by Eurostat show that the Eurozone Harmonized Index of Consumer Prices (HICP) rose by 2% YoY in December, in line with market expectations, after 2.1% in November. On a monthly basis, inflation increased by 0.2%, following a 0.3% decline in the previous month. Core inflation, which excludes volatile components such as food and energy, also slowed to 2.3% on an annual basis from 2.4%, confirming a gradual easing of price pressures across the Eurozone.

These figures come against a still-fragile economic backdrop, particularly in Germany, where Retail Sales declined by 0.6% in November after a 0.3% drop in October, contrary to market expectations. In addition, German Harmonized Index of Consumer Prices inflation slowed sharply in December, reinforcing the view that price dynamics remain subdued in the Eurozone’s largest economy. Services activity also shows signs of moderation, with the Eurozone Services Purchasing Managers Index (PMI) revised lower for December.

On the UK side, the economic calendar is relatively light, leaving EUR/GBP more influenced by broader market sentiment than by domestic data releases. From a monetary policy perspective, the Bank of England (BoE) is not expected to pursue aggressive easing in the near term, as inflation remains above its 2% target. However, the gradual deterioration in labour market conditions, with the Unemployment Rate rising to 5.1% in the three months to October, argues for a progressively more accommodative policy stance.

Against this backdrop, the balance between easing inflation in the Eurozone and still-uncertain monetary prospects in the United Kingdom (UK) explains the current stability in EUR/GBP, with the pair appearing to lack sufficient catalysts to trigger a clear directional move in the near term.