Euro weakens against British Pound as UK CPI data fuels expectations of imminent BoE rate hike
- EUR/GBP loses momentum to around 0.8390 in Wednesday’s early European session.
- UK CPI inflation climbed to 3.5% YoY in September, driven by rising fuel prices.
- French unrest raises concerns over the country's worsening fiscal outlook.
The EUR/GBP cross weakens to near 0.8390 during the early European trading hours on Wednesday. The British Pound (GBP) attracts some buyers following hotter UK inflation data. Traders brace for the speech from European Central Bank (ECB) President Christine Lagarde later on Wednesday for fresh impetus.
Data released by the Office for National Statistics (ONS) on Wednesday showed that the UK headline Consumer Price Index (CPI) jumped 3.5% year-over-year (YoY) in September, versus a rise of 3.1% prior. This figure came in above the market consensus of 3.4% growth.
Meanwhile, the core CPI, excluding volatile food and energy items, rose 2.8% YoY in September, compared to an increase of 2.6% in the previous reading, hotter than the forecast of 2.7%. On a monthly basis, the UK CPI came in at 0.4% in September, versus 0.5% prior, beating the estimates of 0.3%.
This UK September inflation report has fueled expectations of an imminent Bank of England (BoE) rate rise, supporting the GBP and acting as a headwind for the cross.
The BoE is widely expected to lift borrowing costs at its next meeting on November 5, which would be its first hike since 2023. Markets are now pricing in a further three rate rises over the next 12 months, according to Bloomberg.
Protests in France add to concerns about the country's worsening fiscal outlook, weighing on the Euro. Reuters reported on Tuesday that French government will reinforce police with troops and mount a huge security operation for more protests planned on Saturday as the government acknowledged failures in its response to last weekend's violence.
"The worries in France are not going away anytime soon," said Tommy von Brömsen, FX strategist at Handelsbanken. "The bearish view on France will stay for a while longer, and there's much more euro weakness to be priced in,” Tommy added.
UK inflation pressures build as energy and food costs set to rise further
Analysts at Danske Bank judge the latest UK inflation release as broadly in line with expectations, noting that “inflation is moving broadly as we expected and, in some instances, moving slower than we thought it would,” with “food price momentum the one bright spot in the data” as food and non-alcoholic beverages CPI “didn’t move at 1.3% y/y.” However, they caution that “underlying inflation trends are pushing higher, with all our preferred core services metrics rising in September,” underscoring a more persistent price dynamic beneath the headline figures.
Looking ahead, Danske Bank warns that “further rises in energy prices are inevitable.” With “Brent spot prices rising again,” they expect “further increases at the pump will hit the UK’s shores,” while “gas and electricity bills will see a big jolt in January” as their Ofgem Price Cap forecasts “point to a near GBP 2,100 annual dual fuel bill in the new year, with declines only likely to come in the second half of 2027.”
The bank also reiterates its long-standing view that “food price pressures would be hard to ignore for much longer.” Despite “fierce supermarket competition,” Danske Bank argues that “higher energy and weather-related shocks will push seasonal and processed food prices up over the next year or so.” Overall, they conclude that “today’s inflation data confirmed what we all expected: price pressures are firming and inflation remains on an upward trajectory,” adding that “despite today’s uncomfortable jump in CPI, there’s more to come.”
Greene flags stalled wage disinflation, keeping GBP rate-cut hopes in check
Greene’s 7.4/10 score matches the historic average on FXS Speechtracker, but the emphasis on stalled wage disinflation and greater risk of second-round effects marks a distinctly hawkish tilt. The focus on pay growth nearer 3.5% and wages remaining above levels consistent with 2% inflation suggests Greene sees persistent domestic price pressures, limiting scope for rapid BOE easing and supporting GBP on the margin.
By highlighting the economy’s “surprising resilience” and noting labor market slack may have peaked, Greene reinforces the idea that demand-side conditions can sustain inflation risks. This combination of resilient activity and sticky wages backs a narrative of the BOE needing to “proactively lean” against inflation, which is likely to be interpreted as hawkish for UK rates and broadly supportive for GBP in the near term.
Technical Analysis: EUR/GBP keeps a bearish vibe under the 100-day SMA
In the daily chart, EUR/GBP extends a bearish near-term bias as spot holds beneath the 20-period Bollinger middle band and the 100-day moving average. Price is also well below the upper Bollinger band, underscoring a downside-skewed structure, while the Relative Strength Index (14) languishes near 17, signaling deep oversold conditions that could slow, but not yet reverse, the current slide.
On the topside, initial resistance aligns with the Bollinger middle band at 0.8485, ahead of stronger supply at the 100-day moving average near 0.8560 and the upper Bollinger band at 0.8612. On the downside, the lower Bollinger band around 0.8365 offers immediate support; a sustained break below this floor would open the way to fresh lows in the broader downtrend.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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